As a strong US dollar drives up currency volatility across Asia, an artificial intelligence (AI)-fueled tech boom has offered Taiwan some reprieve.
The local currency weakened less than the won and the yen last month, a turbulent month for the region, as US Federal Reserve (Fed) policy bets shifted.
That relative strength came even as authorities kept the amount of intervention “similar to” the previous two months, a central bank official said last week.
Photo: Tyrone Siu, Reuters
Analysts attributed the resilience to a tech-led exports recovery that is allowing a steady supply of US dollars, and an equities rebound driven by foreign inflows.
Taiwanese stocks capped a third straight week of net inflows and the local benchmark has outperformed its peers since the middle of last month, exchange data showed.
Yesterday, the TAIEX closed up 0.72 percent and the New Taiwan dollar ended 0.07 percent higher against the US dollar in Taipei trading.
“Taiwan doesn’t need to step up intervention like Japan due to a rebound in the electronics and semiconductor industries,” Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) said in a press briefing last week.
US dollar supply was “relatively stable,” Tsai added.
A gauge measuring swings in the NT dollar over a rolling 30-day period — known as historical volatility — trails that of the won and the yen, data compiled by Bloomberg showed.
The local currency fell 1.7 percent against the greenback last month, less than the won and the yen.
Its slump spurred verbal warnings from authorities in South Korea and suspected intervention in Japan during the month.
South Korea and Japan teamed up to air concerns over their currency’s weakness in the middle of last month.
Meanwhile, Bank Indonesia hiked interest rates in a surprise move to defend the rupiah.
In contrast, officials in Taiwan have refrained from sending such a strong message to the market.
Taiwan’s central bank “didn’t need to intervene too much because local equities performance is good,” BNP Paribas SA greater China foreign exchange and rates strategy head Ju Wang (王菊) said.
A lack of financial instability and a stable foreign exchange supply due to the exports recovery have allowed Taiwan’s central bank to “keep a relatively hands-off stance,” BNP said.
Taiwan’s exports to the US jumped 81.6 percent year-on-year to US$10.2 billion last month, driven by shipments of information, communication and audio-video products.
Hon Hai Precision Industry Co (鴻海精密), which assembles a majority of Apple Inc’s smartphones, is one of the biggest contributors to the local bourse’s rebound since April 22.
However, policymakers’ stance on currency might shift if the US dollar resumes its uptrend or foreigners turn their back on the local stock market.
If Fed speakers continue to guide markets to price in later or fewer interest rate cuts, or even a hike, US dollar strength might return and Taiwanese officials might still need to be active on intervention, Oversea-Chinese Banking Corp (華僑銀行) foreign exchange strategist Christopher Wong (黃經隆) said.
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