On Tuesday, the Taiwan dollar soared more than 2% to NT 29.16 per U.S. dollar, marking its biggest one‑day gain since early May and extending its year‑to‑date advance to about 12%, the strongest among Asian currencies ft.com. The sharp move reflected heavy dollar sales by exporters and large hedging flows from life insurers rushing to protect vast U.S. bond holdings against a weakening greenback ft.com.
Central Bank Steps In to Ease Swings
In response to the sudden rally, Taiwan’s central bank enlisted state‑owned banks to buy U.S. dollars and restore liquidity. Authorities took this step after the local unit slid more than 2% on Monday, underscoring the rapid back‑and‑forth in trading over two sessions finance.yahoo.com.
Lee Chen‑yu, chief economist at Taishin Financial Holding, said the surge felt like “a rogue wave” that put “considerable pressure on the central bank,” and he warned that tolerance thresholds could be reached quickly. Traders now expect the Taiwan dollar to top NT 28.5 later this year if pressure persists.
Trade War Dynamics Drive Currency Moves
Observers trace the currency’s swings in part to U.S.‑Taiwan trade talks. In early May, the Taiwan dollar leapt nearly 10% in just days after negotiations in Washington concluded, fueling speculation that Taiwan offered to let its currency strengthen in return for tariff relief reuters.com. Taiwan felt the sting of a 32% import tariff threat, and exporters raced to convert incoming dollars into local currency before duties took effect.
President Lai Ching‑te pledged to boost U.S. procurement and lower barriers to imports, but he and central bank officials insist exchange‑rate issues never arose at the negotiating table. Still, market participants view the central bank’s muted response as tacit consent to a stronger currency.
Exporters and Insurers Face New Pressures
Taiwan’s economy depends on exports for roughly 60% of its gross domestic product. A 10% currency gain can cut about NT 300 billion from export revenues, and each NT 1 appreciation reduces Foxconn’s income by nearly 3% wsj.com. At the same time, domestic life insurers hold over $1.7 trillion in overseas bonds. As the currency rallied faster than proxy hedges, insurers pushed for direct hedging, driving further local‑currency demand ft.com.
National Central University professor Dachrahn Wu noted that exporters now wrestle with both higher U.S. tariffs and a stronger local unit. He warned that this “double‑whammy” threatens profit margins and could slow Taiwan’s growth unless firms adjust supply chains or boost productivity.
Personal Analysis
It remains unclear how long this volatility will last. The central bank walks a tight line between taming wild swings and letting market forces reflect Taiwan’s economic health. Until trade‑deal clarity emerges in Washington, exporters and insurers will likely keep driving these big moves. Investors should watch U.S. dollar trends closely, as any sign of renewed greenback strength could reverse this rally and add fresh shocks for Taiwanese firms.
