‘SHORT TERM’:
The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut
The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said.
Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure.
On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan. 9 last year, when it closed at NT$31.023. The decline marked the steepest single-day loss for the US dollar since 2002.
Photo: CNA
The gains made the NT dollar the strongest currency in the Asian market on Friday.
In addition to expectations of US pressure, Lin said that strong gains on the TAIEX, fueled by significant foreign institutional net buying, as well as optimism that the US Federal Reserve would cut interest rates by up to 100 basis points later this year, also contributed to the NT dollar’s strength on Friday.
Lin said that expectations of US pressure on Taiwan to allow the NT dollar to strengthen dominated market sentiment, as several Asian economies — including Taiwan — seek to reduce their trade surpluses with Washington ahead of tariff negotiations.
Drawing parallels to the 1985 “Plaza Accord,” a deal between the US, Japan, West Germany, France and the UK that facilitated a coordinated weakening of the US dollar, Lin said many traders in the local foreign exchange market fear a “Plaza Accord 2.0” could emerge from the current round tariff negotiations.
However, he said that the NT dollar’s sharp single-day gains suggests traders might have overreacted to such concerns.
While Lin forecasted that the US dollar could dip below the NT$30 mark in the short term, he said the NT dollar is expected to move in tandem with other Asian currencies over the longer term, making it unlikely that the local currency would remain an outlier in the global foreign exchange market.
Wu Meng-tao (吳孟道), director of the sixth research division at the Taiwan Institute of Economic Research (台灣經濟研究院), on Friday said that the appreciation of the NT dollar partly reflected the local currency catching up to the yen, which had risen sharply against the US dollar in recent sessions.
Chung-Hua Institution for Economic Research (中華經濟研究院) president Lien Hsien-ming (連賢明) said that to his knowledge, the US did not require Japan to strengthen the yen during their tariff talks.
On Friday, the US Dollar Index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.14 percent to 100, with the euro up 0.12 percent at US$1.1304, in the wake of an upbeat US jobs report.
Against the yen, the US dollar weakened 0.3 percent to 144.99.
Additional reporting by Reuters
