The New Taiwan dollar's recent surge, along with other Asian currencies, reflects a growing trend of de-dollarization in the region.
Analysts attribute this shift to investor concerns about the US dollar's weakening and what they perceive as predatory US economic policies towards other countries.
Economies like Taiwan, heavily reliant on US dollar-denominated assets, have experienced foreign exchange losses as the US dollar weakens. This has prompted local players to seek US dollar hedging and diversify investments away from the US.
Francesco Pesole of ING suggests that this movement away from US assets contributes to the ongoing devaluation of the US dollar.
While the New Taiwan dollar's rise paused on Tuesday, it still signals a significant change in market sentiment.
Taiwan's central bank issued a statement urging manufacturers to avoid excessive reactions based on possibly exaggerated market analysis.
Economies like Taiwan, with a historically high exposure to assets denominated in US dollars, have taken a foreign exchange-led hit after the American currency weakened in recent weeks, wrote Francesco Pesole, foreign exchange strategist at Dutch bank ING, in a note on Tuesday.
“Local players are now seeking greater US dollar hedging, as well as starting to diversify away from US investments.”
The shift from US assets is likely to contribute to the continued devaluation of US dollars, supporting a “bearish narrative” for the currency, Pesole added.
The New Taiwan dollar’s surge hit a pause on Tuesday, closing at NT$30.28 to US$1 from Monday’s NT$30.145 – ending a strengthening streak observed since April 24. It traded at NT$30.244 as of Wednesday afternoon.
Taiwan’s central bank published a statement on Monday urging manufacturers to remain calm and avoid “dumping US dollars due to irrational expectations based on over-exaggerated or untrue analyses in the market”.
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