Traders are dialing back expectations for swings in the New Taiwan dollar as geopolitical tensions ease and investors return their focus to the global economic outlook.
Three-month implied volatility in the currency, a gauge of anticipated moves, this week slipped to the lowest since September last year.
The measure rose last month amid global banking tensions and pushed even higher at the start of this month, when President Tsai Ing-wen (蔡英文) prepared for trip to Central America that included two stopovers in the US, following the second of which Beijing launched a series of military drills around Taiwan.
Photo: CNA
The easing in expected price swings for the NT dollar coincides with moves seen in other regional currencies.
Three-month implied volatility in the haven yen has also fallen back as the global bond market calms and traders pull trim bets on Bank of Japan policy tweaks, while the yuan equivalent has retreated amid a lack of catalysts in Chinese markets.
In other asset classes, tensions in the Taiwan Strait barely registered on investor radars, unlike the jitters caused by then-US House of Representatives speaker Nancy Pelosi’s trip to Taiwan in August last year.
“The fact is that there will always be some cross-strait uncertainties due to the US-China tension and also Taiwan’s own macro underperformance in particular exports,” said Stephen Chiu (趙志軒), chief Asian foreign exchange and rates strategist at Bloomberg Intelligence in Hong Kong.
“There are better Asian currencies such as the [South] Korean won to express a weaker US dollar view, keeping [New] Taiwan dollar volatility at a low level in the near term,” Chiu said.
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