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Taiwan Dollar Rally Is Set to End, Says Survey

By rallying 6.5% against the US dollar in the first half of the year, the Taiwan dollar so far claims the crown of 2017’s best performing Asian currency. The Taiwan dollar’s rally is likely to have ended however, according to the results of a Bloomberg survey of foreign exchange traders who were asked their views on the year-end USD/TWD exchange rate.

The results of the survey, published today, indicate a median year-end estimate for USD/TWD of 31.0, which marks a 1.7% rise (a Taiwan dollar fall) from this morning’s rate of 30.48.

A decline in the Taiwan dollar will be driven by differences in the future monetary policies of the US and Taiwanese central banks, according to survey respondents.

While the US Federal Reserve are expected to hike interest rates at least once more this year, Taiwan’s central bank, the Central Bank of the Republic of China (Taiwan), will likely be doing nothing of the sort.

With inflation running at just 0.6% in Taiwan, the country’s central bankers are under no pressure to hike interest rates any time soon. By comparison, inflation in the US runs currently at 1.9%.

Because interest earned on US dollar deposits is likely to increase faster than it will on Taiwan dollar deposits, naturally the US currency will benefit from an inflow of funds and will appreciate against its Taiwanese counterpart.

A fall in the Taiwan dollar from current levels also makes sense on technical grounds.

A crucial test for the currency came in mid-May when investors watched to see whether it could push below the psychologically important 30.0 level against USD.

Although USD/TWD did manage to push as low as 29.72 on May 19th – a 3 ½ year low at the time – this venture below 30.0 was immediately rejected, demonstrated by the appearance of a rejection tail on the daily bar charts – a “rejection” being equal to a price or price range from which the market moved quickly away, spending very little time at, and a “tail” being similar to the appearance of the rejection bar, which now hangs below the surrounding price action. One might also suggest that a “stop run” occurred below 30.0. It seems fairly obvious that a multitude of stop-loss orders would have been placed below this important level.


twd
USD/TWD 3 Month Chart

Having rejected sub-30.0 prices, throughout much of June USD/TWD traded sideways but then began to trade higher which was not unexpected given that markets tend to trade away from ‘tails’.

Other forecasts of future USD/TWD exchange rates include that made by TradingEconomics.com, who are predicting the rate at 31.70 in 12-months’ time.

Against the euro, the Taiwan dollar had risen to a 15-year high in April (a low in EUR/TWD) but has fallen sharply since then on the back of Emmanuel Macron’s victory in the French presidential election and in light of more upbeat rhetoric coming from the European Central Bank. This morning EUR/TWD stood at 34.61.

Against the Japanese yen, Taiwan’s currency has, for the most part, traded sideways since late 2016. This morning the Taiwan dollar was buying ¥3.71.

Readers in Taiwan with plans for overseas trips or for making international payments this year can position themselves ahead of any fall in the buying power of their currency by changing their money into foreign currency sooner rather than later. Readers can change their money at exchange rates far better than those available at a typical bank or Bureau de Change by using BestExchangeRates’ online comparison calculators for travel cash and foreign currency transfers.

 
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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