Taiwan Dollar posts biggest two-day jump in decades
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The news: Taiwan’s currency has posted its biggest two-day climb in over three decades, on speculation that exporters are scrambling to convert US dollar holdings to Taiwanese dollars.
The numbers: The Taiwanese dollar extended its gains when trading opened on Monday, rising by another 2.5% against the US dollar, pushing its two-day climb to 6.5%. The currency has risen almost 10% since the beginning of April.
Shares in heavyweight Taiwan Semiconductor Manufacturing Co. fell on Monday, trimming its 7% rise from last week as concerns that the stronger local currency will cut into export earnings.
The context: Monday trading has been “hectic” according to Bloomberg, as the volume of US dollar-Taiwanese dollar trades in Taipei jumped the most since the 2008 crisis, and banks have been inundated with inquiries over the surge.
“Local exporters are panicking, and local lifers are under-hedged, while equity-related outflows have ceased,” Ju Wang, head of Greater China foreign-exchange and rates at BNP Paribas SA told the outlet. “The central bank remains the only buyer but has not been aggressively supporting the market, fuelling speculation that currency valuation is part of the trade talks.”
Taiwan’s life insurers hold a significant amount of overseas debt (amounting to almost USD1.7 trillion ($2.62 trillion)) in the form of US bonds. However, as most of the insurers have not hedged their currency exposure they are exposed to losses when the US dollar drops. A push to hedge those exposures in the falling market may be contributing to the large currency moves.
