Taiwan Dollar Stumbles on Tech Fears

A projected worldwide recession is expected to cut into the island’s technology exports, which would likely result in the biggest gain for the Taiwan dollar in over a quarter of a century coming to an end. The currency, which has strengthened by more than 4% this month to reach 30.90 per US dollar, is expected to fall to approximately 33 by the end of the first quarter, according to projections made by Mizuho Bank Ltd. and RBC Capital Markets, as exports to other countries have decreased for the second month in a row. A worldwide recession is on the horizon, major IT companies are cutting employment, and the number of people infected with Covid-19 is increasing in China, which is the most important trade partner for an economy that is dependent on exports. The outlook is not optimistic.

According to Philip McNicholas, an Asia sovereign strategist at Robeco Group in Singapore, “The recent rally has helped TWD recover some lost ground, but with the semiconductor cycle turning lower and the purchasing managers indexes wallowing at very low levels, the growth argument to hold TWD looks handicapped.”

Global technology giants such as HP Inc. and Dell Technologies Inc. are laying off workers as they attempt to negotiate a prolonged decline in demand for personal computers. Additionally, phone-makers have warned of declining sales of their products. Because Taiwan’s economy is so dependent on China, a downturn in China increases the likelihood of adverse outcomes. This will put the island’s exports at risk, which are a significant contributor to the country’s foreign exchange and reached a record high of $446.5 billion in the previous year.

The profits of Taiwan’s top three technology companies — Taiwan Semiconductor Manufacturing Co., MediaTek Inc., and Hon Hai Precision Industry Co. — may remain strong in the short term; however, according to the Bloomberg Intelligence Strategist Marvin Chen, the sector may see slower growth or even contract next year. Taiwan’s top three technology companies include MediaTek Inc., Taiwan Semiconductor Manufacturing Co., and Hon Hai Precision Industry Co. As a result of the expanding interest rate gap between Taiwan and the United States, the Taiwanese dollar has fallen by more than ten percent so far this year and is on track to experience its sharpest decline since 1997. Even though the Federal Reserve raised interest rates by 375 basis points, the country’s central bank only increased interest rates by a total of 50 basis points, making it one of the smallest increases in Asia. On December 15, Taiwanese authorities will make their next decision about interest rates.

This month, Goldman Sachs Group Inc. also announced that it is underweight on the Taiwan dollar because of the possibility that geopolitical issues may lead to international investors selling the island’s stocks. Having said that, preliminary results from the weekend’s local elections suggest that the opposition Kuomintang party, which supports stronger ties with China, prevailed in a greater number of cities and counties than the ruling party did.

The ascent to power of the Democratic Progressive Party, who are currently in power, had caused friction with China.

“We expect the Taiwan dollar to revert to 32-33 level in the medium term as the recession will dampen demand for Taiwan’s electronic exports,” said Ken Cheung, chief Asian FX strategist at Mizuho in Hong Kong. “We expect this to happen because the recession will dampen demand for Taiwan’s electronic exports.” “The central bank’s rate-hike pace will also lag behind the cycle of rate-hikes being implemented by the Federal Reserve,” and “the currency will continue to be weak in comparison to its peers.”

Advertisement