The nation’s weakening economic outlook could spell the end of a rally for the New Taiwan dollar as investors reassess optimistic wagers on China’s reopening and a recovery in global demand for semiconductors.
The New Taiwan dollar is near its strongest level since June last year after rallying along with emerging-market peers on signs that global interest rates are reaching their peak.
However, Taiwan’s darkening economic outlook and mounting tension between the US and China threaten to cap further gains, analysts said.
Photo: CNA
“Taiwan’s economic outlook remains weak and while it has seen equity inflows recently, the tech cycle is yet to turn and geopolitics will continue to weigh,” Credit Agricole CIB senior emerging markets strategist Eddie Cheung (張敬勤) said.
The currency is likely to weaken past NT$30 per US dollar in the coming weeks as traders pare optimistic bets on China’s reopening, he said.
The NT dollar traded 0.28 percent lower at NT$29.984 per US dollar yesterday in Taipei trading.
The headwinds for the NT dollar are mirrored by challenges facing other regional peers, boosting chances for the greenback to mount a comeback in Asia.
South Korea’s won could also be affected by falling demand from semiconductors, while pressure on current-account deficits look set to weigh on India’s rupee and the Philippine peso, analysts said.
The rally has already taken Taiwan’s currency into overbought territory versus the greenback, according to slow stochastics, a technical momentum indicator, suggesting it could struggle to make near-term gains.
Technical resistance around NT$29.02 per US dollar, the high of May 31 last year, is also poised to cap any advance.
Chipmakers including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) are major contributors to the economy, and the nation benefited from the COVID-19 pandemic-fueled surge in demand for electronics.
However, orders for the country’s cutting-edge technology have since waned, and TSMC rival Samsung Electronics Co recently warned that a recovery for the chip sector could be delayed until the second half of this year.
Investors can get their latest reading on the health of the nation’s economy when Taiwan releases trade data today, with economists expecting last month’s exports to slump 20.3 percent from a year earlier, estimates compiled by Bloomberg showed.
The NT dollar benefited from “a catch-up rally amid favorable circumstances to overall emerging currencies,” said Kiyong Seong, lead Asia macro strategist at Societe Generale SA in Hong Kong.
Seong expects a pullback in emerging-market currencies in the second quarter as slowing global growth replaces China’s reopening as the dominant theme.
“Taiwan macro continues to trend weaker in this semiconductor downcycle, and destocking may not be over in the first half,” keeping the currency under pressure, Bloomberg Intelligence Asia currency and rates strategist Stephen Chiu (趙志軒) said.
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