Taiwan Dollar Weakness Driven by Equity Flows as CBC Holds Steady – MUFG

2.33% was Taiwan’s annual headline inflation rate in October, down according to MUFG. Core inflation stood at 2.23%, leaving both measures above the 2% alert level. While the CBC is expected to hold its policy rate at 2.00% in December, continued Taiwan Dollar (TWD) weakness could raise upside risks. With TWD behaving more like a high-beta semiconductor and equity-flow currency, officials have called on exporters and banks to facilitate US Dollar conversion.

High-beta TWD behaviour meets a stable policy outlook

"Recently, TWD has been behaved like a high-beta semiconductor and equity-flow currency, rather than a conventional strong current account driven Asian currency."

"Meanwhile, Taiwan’s headline inflation eased to 2.33%yoy in October from 2.74%, while core inflation moderated to 2.23%yoy."

"Despite both measures remaining above 2% alert level, we expect the CBC to keep its policy rate unchanged at 2.00% in December, though a persistent TWD weakness may increase the upside risk at the margin."

"Yesterday, the CBC officials encouraged the exporters to convert their US dollar proceeds whenever the conditions are favourable and also urged the banks to fulfill exporters’ US dollar conversion needs."

"With a Democratic sweep, we could expect a lower US yield tail risk, which should provide some support for semiconductor valuations and Taiwan equities."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)