The Taiwan dollar surged more than 2% in another day of volatility for the currency, as exporters’ sales of the greenback tested the central bank’s tolerance for local currency strength.
The currency jumped as much as 2.5% to 29.16 per U.S. dollar Tuesday in the biggest one-day gain since early May, after sliding over 2% on Monday. The latest move pushed the local currency’s gain this year to 12%, making it the best performer in Asia.
Large foreign inflows and significant US dollar selling by local exporters were seen in Tuesday’s morning session, according to two traders, who asked not to be identified as they weren’t authorized to speak publicly. State banks bought the greenback to smooth market liquidity, they said.
The local currency has been buffeted by a series of sharp swings since last Friday, as the central bank stepped in to check its gains following the US dollar’s decline. Authorities are eager to prevent a sharp appreciation to ease the pressure on life insurers after a jump in exports amid the trade war triggered a wave of repatriation by Taiwan’s corporates.
While the exact reasons behind the latest moves were unclear, the wild swings in the Taiwan dollar over the past two trading sessions come as domestic firms — including life insurers and exporters — prepare to release their half-year financial reports. The sharp slide which helped the currency close lower Monday would have helped local firms — many of which have taken a hit from the currency’s rally —- to present better financial results.
“The Taiwan dollar has been under strong appreciation pressure due to record trade surpluses, equity inflows, and hedging activity by Taiwan life insurance companies,” Khoon Goh, head of Asia research at ANZ, wrote in a note. Since the central bank “‘strategically allowed’ TWD to rally in early May, they have been trying to manage the currency’s strength,” he added.
“Window-dressing type of interventions are seasonal in nature and serve to pause but not reverse the USD/TWD trend,” said Fiona Lim, a senior strategist at Malayan Banking Bhd in Singapore. “As long as the broader US dollar decline continues, the sell-USD/TWD-on-rally trade could go on.”
The currency pair is expected to swing both ways as the Taiwan dollar gets caught between speculation of central bank intervention and weakness in the greenback, Lim added.
