(Seoul = Yonhap News) Reporter Hwang Jung-woo = This month, Taiwan’s currency, the Taiwan dollar, surged 6.2% against the U.S. dollar.
Given that the value of the Taiwan dollar has maintained a relatively stable trend, the recent surge is an unprecedented movement.
The Taiwan dollar jumped 9% against the U.S. dollar over two trading days on the 2nd and 5th of this month, then fell 3% on the 6th.
This volatility coincided with the highest level of trading volume between the U.S. dollar and the Taiwan dollar seen in over 15 years.
Invesco’s global market strategist David Chao stated, “This currency movement shows more volatility than during the Asian financial crisis.”
Bloomberg analyzed that the various influences on the persistent downward pressure on the Taiwan dollar may have combined to trigger the rapid rise.
Local media reported that the Taiwanese government might allow a strong Taiwan dollar as part of trade negotiations with the U.S., leading exporters to aggressively sell the U.S. dollar, possibly sparking the surge of the Taiwan dollar.
While the Taiwanese government announced that the negotiating team held its first meeting with the U.S. on the 1st, they did not disclose details.
Following the surge in the Taiwan dollar’s value, the Taiwanese government officially denied that the exchange rate was a topic of discussion in the negotiations.
Moody’s Analytics‘ head of Japan and emerging markets economics, Stefan Angrick, commented that despite the formal denial by the Taiwanese government of exchange rates being part of the trade negotiations with the U.S., “exchange rates could quietly be on the table in broader trade talks.”
U.S. President Donald Trump has advocated for a weaker dollar to enhance U.S. export competitiveness.
The strength of the Taiwan dollar negatively impacts the profitability of export companies, especially TSMC, the world’s largest foundry (semiconductor contract manufacturer). It is reported that TSMC’s operating profit margin drops by approximately 0.4 percentage points for every 1% appreciation in the Taiwan dollar.
Additionally, Taiwan’s life insurance companies are directly affected by the surge in the Taiwan dollar’s value.
Most of the 23 trillion Taiwan dollars worth of overseas assets held by local life insurers are U.S. government bonds and other U.S. bonds. It is estimated that as of the end of last year, these insurers’ foreign asset hedge ratio was only 65%, near a historical low.
Consequently, if these life insurers increase their hedges to prepare for further declines in the U.S. dollar, the value of the Taiwan dollar could rise even more.
jungwoo@yna.co.kr