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Gradual Appreciation of Taiwan Dollar Likely, Says Research Group, and Stormy Waters Possibly Ahead for Emerging Market Currencies

The team at BMI Research – part of the Fitch group of companies – are maintaining their “slightly bullish” short-term view on the Taiwan dollar, mainly on technical grounds.

Over a longer-term, analysts at the firm are also positive on the Taiwanese currency, believing in a “gradual appreciation”, based upon a solid fiscal outlook in Taiwan and what they see as an undervalued currency generally.

BMI expect fewer US rate hikes in 2017 than many in the market – just one further hike this year – and coupled with their belief that inflation pressures will be higher in the US than they will be in Taiwan, the group believes that the real interest rate differential between Taiwan and the US should favour TWD going forward.

Furthermore, Taiwan’s current account surplus, which has averaged a little more than 8% of GDP since 1990, makes Taiwan “less susceptible to portfolio outflows and should provide support for Taiwan’s income account and TWD in the future”, says BMI.

“Indeed, Taiwan’s large reserves will place appreciatory pressures on the currency over the long term as interest payments feed through into a strong income account surplus”, they conclude.

As of writing at 02:55 GMT, April-27, the exchange rate for USD/TWD stands at 30.10. The US dollar has fallen 11% versus its Taiwanese equivalent since highs established near 33.80 in early-2016.

Readers looking to buy Taiwan dollars while they remain cheap can bypass hefty FX margins at the banks and instead use BestExchangeRates.com’s online comparison calculators for TWD foreign currency transfers and TWD travel money.

 

Mexican Peso Hammered on Rumours of US Leaving NAFTA, Possible Spillover to Other Emerging Market Currencies

The Mexcian peso was hammered yesterday on reports that the US, under Donald Trump’s leadership, are preparing to pull themselves out of NAFTA – the free trade agreement between the US, Mexico and Canada in existence since 1994.

USD/MXN began rallying from lows at 18.85 at around 06:30 Eastern Time, and reached highs of 19.29 by 13:00 Eastern, representing a 2.3% fall in the buying power of the peso.

More importantly, at least for those interested in other emerging market currencies such as the Indian rupee, Thai baht, South African rand, Philippine peso, Russian ruble etc., might be the second-most ever outflows this week from the iShares Emerging Markets Local Currency Bond ETF. The fund experienced $82.6 million in outflows on Tuesday alone, according to Bloomberg.

An avalanche of withdrawals from the fund began the day after the Trump administration imposed duties on Canadian softwood lumber imports – a decision which seemingly represents the first act in the manifestation of Trump’s “America first” agenda, or American protectionism. The withdrawals do not bode well for the near-term valuations of emerging market currencies.

Like the Mexican peso, the baht, rand, ruble and Philippine peso all fell against the US dollar yesterday, but to a mixed extent.

The rand was weakest of the bunch, closely mimicking the Mexican peso. USD/ZAR rallied from its open (Tuesday’s New York close) at 13.05 to as high as 13.37 at one stage, and ended the day at 13.27 – a 1.27% fall in the rand’s value. By comparison, the Thai baht lost only 0.2%. USD/THB closed at 34.46.

The Indian rupee, which has been, and remains, something of an emerging market currency hero in 2017, gained against the dollar. As of writing, USD/INR trades at the 64 handle, give or take a few pips.

 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 
 

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