TradingKey - Against the backdrop of a weakening U.S. dollar, increased attractiveness of Taiwanese stocks, and rising foreign exchange sales by local exporters, the New Taiwan Dollar (TWD) surged on Thursday, approaching the key level of 29 against the U.S. dollar — marking a three-year high.

On Thursday, June 26, the USD/TWD exchange rate fell nearly 2%, currently trading at 29.069, the lowest level since June 2022 — meaning the TWD has hit a three-year high against the U.S. dollar.

USD/TWD exchange rate, Source: TradingView

So far this year, the TWD has appreciated approximately 12% against the USD. In early May, it saw its largest single-day gain in over 40 years due to insurance companies selling off U.S. dollar assets for risk mitigation purposes. 

Analysts say the recent appreciation has been driven by foreign capital inflows into the Taiwanese stock market, a weaker dollar, and increased foreign exchange sales by exporters.

ANZ Bank noted that with easing tensions in the Middle East, the renewed weakness of the U.S. dollar and inflows into Taiwanese equities have once again intensified pressure on the TWD to appreciate.

Banking sources pointed out that foreign investors have bought more than NT$35 billion worth of Taiwanese stocks so far in June, pushing the TWD to become the strongest currency in Asia this month.

Moreover, after negative market factors dissipated and risk aversion quickly subsided, the strong capital-attracting power of the Taiwanese stock market brought in foreign funds. Exporters also typically increase their foreign exchange sales toward month-end, while some overseas investment returns from mutual funds are being repatriated, making it difficult for the TWD not to strengthen.

Some foreign exchange analysts warned that, to some extent, the TWD could face the risk of entering a cycle of excessive strength, as exporters and financial institutions rush to sell dollars.

Recently, as multiple Federal Reserve officials downplayed the inflationary impact of tariffs and expressed dovish views on potential rate cuts, U.S. President Trump has continued pressuring Fed Chair Jerome Powell to cut rates. The U.S. dollar has therefore remained weak. 

Market expectations suggest that among the three to four candidates reportedly under consideration by Trump for the next Fed chair, most are seen as more open to accommodative monetary policies.

Banking sources expect the TWD to consolidate in the range of 29.25 to 29.50 in the short term. If the U.S. dollar continues to weaken, the TWD may rise further toward the 29.20 level. 

However, attention should be paid to potential intervention by Taiwan’s monetary authorities to stabilize the exchange rate, as well as the downward pressure on the TWD from oil payment outflows caused by falling international oil prices.

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