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(Bloomberg) -- Taiwan’s dollar surged the most since 1988 as traders speculated that authorities might allow it to appreciate to help reach a trade deal with the US.
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The local dollar rose as much as 5% on Monday. In an emergency press briefing late Monday, Taiwan’s central bank sought to quell speculation about the currency’s surge, saying that the wild, two-day appreciation was partially attributable to market chatter and urged against irresponsible speculation.
It also reiterated that the US did not require the currency to appreciate. Taiwan’s office of trade negotiations also said that it had wrapped up a first round of tariff-reduction negotiations with the US and that the talks did not touch upon the issue of foreign exchange policy. US President Donald Trump has previously advocated a weaker US dollar to boost America’s competitiveness.
Others pointed to US dollar hedging by Taiwan’s life insurance companies as also giving the local currency extra momentum. Seperately, the markets regulator has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening Taiwan dollar has impacted their operations, people familiar with the matter said.
“Local exporters are panicking, and local lifers are under-hedged, while equity-related outflows have ceased,” said Ju Wang, head of Greater China foreign-exchange and rates at BNP Paribas SA in Hong Kong. “The central bank remains the only buyer but has not been aggressively supporting the market, fueling speculation that currency valuation is part of the trade talks.”
Taiwan Semiconductor Manufacturing Co. dropped 1.3% on concern the stronger currency will dent its export earnings.
The volume of US dollar-Taiwan dollar trades in Taipei early Monday jumped to the most since the 2008 global financial crisis. Banks have been bombarded with customer inquiries over the surge, with Cathay United Bank Co. introducing virtual queues on its online app to “maintain system stability.”
Despite the currency’s gains, Taiwan’s monetary authority hadn’t been seen aggressively intervening in the market Monday to limit its strength, though it typically does so to smooth out volatility.
The recent tolerance of the central bank “for Taiwan dollar appreciation likely reflects a broader policy recalibration,” Christopher Wong, a senior foreign-exchange strategist at Oversea-Chinese Banking Corp. in Singapore, said before the central bank’s briefing. “A more market-determined TWD ahead of negotiations may also be helpful during trade talks.”