Taiwan dollar rises in bid to break 1997 level

Taiwan dollar rises in bid to break 1997 level

The Taiwan dollar is rising in a bid to crack a level that has held for almost 25 years, boosted by booming exports. It may face stiff resistance.

Taiwan s policy makers may slow the currency's gains as it approaches 27.501 per greenback, a level it last reached in March 1997. An impending lift-off in U.S. interest rates may also affect the local dollar's advance.

The currency's rise could put Taiwan dollar bulls on the collision course with the central bank, which frowns on excessive gains that could hurt exports. The authorities have started intervening again after they stopped doing so since March, with state-backed banks buying the dollar at the end of 2021 and earlier this week, according to Taipei-based traders.

While policy makers have allowed for market forces to play a greater part in the Taiwan dollar's levels, they will step in if they find excess volatility, said Christopher Wong, senior foreign-exchange strategist at Malayan Banking Bhd. Foreign inflows have helped drive the local dollar s strength this week, Eugene Tsai, the director general of the Department of Foreign Exchange, said Wednesday that the central bank only smooths currency volatility when there is a large move. He declined to say if the authorities intervened this week.

The Taiwan dollar fell 0.1% to around 27.7 at midday on Friday after it had its strongest close since April 1997 on Wednesday. Some others note that the central bank may tread lightly in the run up to the release of the U.S. Treasury Department's foreign-exchange policy report.

We'll see whether central bank officials can keep up their no intervention practice since March before the U.S. Treasury report in April, according to Stephen Chiu, chief Asia FX and rates strategist at Bloomberg Intelligence. Taiwan will not want to be named a manipulator. They will want to stay quiet before the next report. Taiwan, along with Switzerland and Vietnam, dodged the currency manipulator label in the Treasury Department's FX report released last April, even though the three economies met the criteria.

The Taiwan dollar is under external pressure, as well as internal pressure. Demand for risk assets is likely to wane after minutes from the December meeting of the Federal Reserve pointed to an aggressive pace of tightening.

With the Fed expected to lift rates this year, higher U.S. yields could lead to greater volatility and impact equity flows into Taiwan, which could affect the currency, said Khoon Goh, head of Asia research at ANZ in Singapore.

Eupho Lin, Cathay United Bank Co. chief economist in Taipei, said the Taiwan dollar is likely to return to the 28 levels by the end of the year after the Fed raises borrowing costs.