Positive outcomes: People visit the AI Expo in Taipei. An artificial intelligence-fuelled tech boom has offered Taiwan some reprieve as the local currency weakens less than the South Korean won and Japanese yen. — AP
TAIPEI: As a strong US dollar drives up currency volatility across Asia, an artificial intelligence-fuelled tech boom has offered Taiwan some reprieve.
The local currency weakened less than the South Korean won and Japanese yen in April, a turbulent month for the region as Federal Reserve (Fed) policy bets shifted.
That relative strength came even as authorities kept the amount of intervention “similar to” the previous two months, according to a central bank official.
Analysts attributed the resilience to a tech-led exports recovery that’s allowing a steady supply of the US dollar, and an equities rebound driven by foreign inflows.
Taiwanese stocks capped a third straight week of net inflows and the local benchmark has outperformed peers since mid-April, exchange data showed.
“Taiwan doesn’t need to step up intervention like Japan due to a rebound in the electronics and semiconductor industries,” Eugene Tsai, head of the foreign exchange department at Taiwan’s central bank, said in a press briefing last week.
He added that US dollar supply was “relatively stable.”
A gauge measuring swings in the Taiwan dollar over a rolling 30-day period, known as the historical volatility, trails that of the won and the yen, according to data compiled by Bloomberg.
The local currency fell 1.7% against the greenback in April, less than the won and the yen, whose slump spurred verbal warnings from authorities in South Korea and suspected intervention in Japan during the month.
The two countries even teamed up to air concerns over their currency weakness in mid-April, while Bank Indonesia hiked rates in a surprise move to defend the rupiah.
In contrast, officials in Taiwan have refrained from sending as strong a message to the market.
Taiwan’s central bank “didn’t need to intervene too much because local equities performance is good,” said Ju Wang, head of greater China foreign exchange and rates strategy at BNP Paribas SA.
In a separate note, the brokerage said a lack of financial instability and a stable foreign exchange supply due to the exports recovery have allowed the central bank to “keep a relatively hands-off stance”.
Taiwan’s exports to the United States jumped 81.6% year-on-year to US$10.2bil in April, driven by shipments of information, communication and audio-video products.
Hon Hai Precision Industry Co, which assembles the majority of Apple Inc’s smartphones, is among the biggest contributors to the equity benchmark Taiex index’s rebound since April 22.
Policymakers’ stance on currency, however, may shift if the US dollar resumes its uptrend, or foreigners’ turn their back against the local stock market.
If Fed speakers continue to guide markets to price in later or fewer interest rate cuts, or even a hike, then US dollar strength may return and that would mean officials may still need to be active on intervention, according to Christopher Wong, a foreign exchange strategist at Oversea-Chinese Banking Corp. — Bloomberg
