Photographer: Billy H.C. Kwok/Bloomberg

Taiwan Dollar's Asia-Beating Rally May Be Coming to an End

  • Traders expect local currency to weaken 1.8% from June 30
  • Stock outflows, central bank’s stance cited as main factors

The Taiwan dollar’s Asia-topping gains are coming to an end, local traders say.

The currency, which jumped 6 percent in the first half amid strong equity inflows, will end the year at 31 to the U.S. dollar, according to the median estimate in a Bloomberg survey of foreign-exchange traders. This implies a 1.8 percent drop from the close on June 30. Overseas investors are likely to post net fund outflows over the next 12 months, while the central bank will show a bias for a steady to weaker Taiwan dollar, a majority of the 17 respondents said.

The survey adds to signs the Taiwan dollar’s rally in 2017 -- the best among 11 Asian currencies tracked by Bloomberg -- is unraveling. The currency posted its first monthly decline this year in June amid slower stock inflows and speculation of renewed intervention. With the U.S. expected to continue raising interest rates and Taiwan seen holding rates steady this year, the island’s assets are also seeing their relative appeal erode.

“Inflation in Taiwan is low, so the central bank has no urgency to raise rates,” said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd in Singapore.“This will lead to pressure for fund outflows.”

Wong expects the Federal Reserve’s policy outlook to put pressure on Asian currencies including the Taiwan dollar and South Korean won this half. Taiwan’s currency strengthened 0.1 percent to 30.51 to the greenback on Wednesday.

Net inflows into Taiwan’s stock market fell to $720 million in June, the lowest figure for any month this year. The island has still seen a net $8.8 billion of equity investments from overseas this year through Tuesday, second in Asia after South Korea.

This has helped the benchmark Taiex gauge rally 12 percent this year and reach a 27-year high on June 26. There are also signs the stock rally may falter: the measure slid the most this year on June 28 and a majority of respondents in a separate Bloomberg survey said they expect the Taiex to end the year below the 10,000 level.

  • Ten of the 17 respondents in the latest currency survey said the central bank’s attitude toward the Taiwan dollar is neutral with a bias for weakness, while six said neutral.
  • Ten also said foreign investors will probably post net outflows over the next 12 months, four said flows will be neutral while the rest said inflows are likely.
  • The exchange rate will fall to 30.73 to the U.S. dollar at the end of the third quarter, according to the median of 16 estimates.
  • The survey was conducted June 26 to 29, with 12 banks participating.
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