U.S. dollar hits over 8-month high on Taipei forex market

Taipei, The U.S. dollar rose to its highest level against the Taiwan dollar in more than eight months, at the end of this week, after rising by more than 1 percent during the week.

The strong gains posted by the U.S. dollar resulted from simmering trade friction between the United States and China, which prompted investors to park their funds in U.S. dollar denominated assets for a safe haven, dealers said. A rate hike cycle carried out by the U.S. Federal Reserve also gave an additional boost to the currency, they said.

This week, the U.S. dollar rose NT$0.305 or 1.01 percent to close at NT$30.307 on Friday, the highest level since June 10, 2017, when the greenback ended at NT$30.376 against the Taiwan dollar.

On Tuesday alone, the U.S. dollar gained NT$0.184 or 0.61 percent against the Taiwan dollar as foreign investors moved funds out of the region amid rising fears over a trade war between Washington and Beijing.

On Monday, President Donald Trump threatened to impose a 10 percent tariff on US$200 billion worth of Chinese goods after China announced last week it would slap a retaliatory 25 percent tariff on US$36 billion worth of U.S. goods, starting from July 6, warning that another US$16 billion worth of U.S. goods could face tariffs after a review.

China's move came soon after the U.S. announced the imposition of a 25 percent tariff on US$50 billion worth of Chinese goods, including machinery, robotics, aerospace components, information technology devices and auto products, starting July 6.

On Thursday, the U.S. dollar also gained more than NT$0.1 against the Taiwan dollar on expectations that the local central bank would leave its key interest rates unchanged in a quarterly monetary policymaking meeting that day, dealers said.

As the market had anticipated, the central bank maintained interest rates intact for eight quarters in a row at a time of a rate hike cycle in the U.S. and such a move by the local central bank further depressed the Taiwan dollar against the greenback, dealers added.

Throughout the week, foreign banks and local importers stood on the buy side for the U.S. dollar, dealers said.

After the Thursday policymaking meeting, Yang Chin-long (???), Taiwan's central bank governor, said the current nominal and real interest rates in Taiwan remained appropriate, compared with other currencies, implying that the central bank would not raise interest rates in the near term, which prompted currency traders to think the bank will maintain its monetary policy into the end of this year.

Since the Fed has hinted it will raise interest rates two more times for the rest of this year, dealers said, the U.S. dollar is expected to remain attractive to investors and that could lead to more fund outflows to further drag down the Taiwan dollar.

In addition, foreign investors are expected to receive a large chunk of cash dividends from the listed firms in Taiwan over the next few months so fund repatriation is expected to become more intense, which could further bolster the U.S. dollar, dealers said.

Source: Focus Taiwan News Channel