TAIPEI (Taiwan News) — The Taiwan dollar climbed to its strongest level in more than three years on Thursday, closing at NT$29.165 against the US dollar.
A lower exchange rate indicates a stronger local currency, as fewer Taiwan dollars are required to purchase one US dollar. With the NT$29 threshold in sight, market observers are closely watching to see if the Central Bank will step in to defend the level, according to CNA.
Traders attributed the Taiwan dollar’s rally to growing expectations of US interest rate cuts following dovish signals from Federal Reserve officials. The US dollar index weakened, leading to gains across multiple currencies.
Rate cuts typically lower borrowing costs, boosting economic activity. However, they also reduce returns on dollar-denominated assets, often causing the US dollar to depreciate, according to ThinkMarkets.
Foreign exchange dealers said capital inflows from institutional investors and mutual funds increased as the Taiwan dollar strengthened. Exporters with end-of-month conversion needs also accelerated US dollar sales, adding further upward pressure.
At the same time, US dollar buying slowed as investors grew more cautious.
Currency market sources said the Central Bank has not only intervened intraday but also advised major exporters and forex banks to stagger their foreign exchange transactions to avoid triggering a sharp appreciation of the Taiwan dollar.
While a stronger Taiwan dollar helps importers by reducing the cost of foreign goods, it can hurt Taiwan’s export-driven economy by making its goods more expensive abroad, dampening global competitiveness.
The local currency has now strengthened for three consecutive sessions, gaining a total of 1.9%. Forex traders had previously expected stronger resistance from the Central Bank near the NT$29.5 and NT$29.2 levels.
However, both were surpassed with ease. Market watchers are now focused on whether the Central Bank will take stronger measures to prevent the Taiwan dollar from breaking through the NT$29 mark.
