Taiwan Dollar: CBC steady as equity flows drive weakness – MUFG

MUFG notes Taiwan’s headline inflation eased to 2.33% year-on-year in October, with core at 2.23%, both above the 2% alert level. The CBC is expected to keep its policy rate at 2.00% in December, though persistent Taiwan Dollar (TWD) weakness could tilt risks higher. Officials have urged exporters and banks to facilitate US Dollar conversion, as TWD trades more like a high-beta semiconductor and equity-flow currency.

High-beta behaviour and policy stability

"Recently, TWD has been behaved like a high-beta semiconductor and equity-flow currency, rather than a conventional strong current account driven Asian currency."

"Meanwhile, Taiwan’s headline inflation eased to 2.33%yoy in October from 2.74%, while core inflation moderated to 2.23%yoy."

"Despite both measures remaining above 2% alert level, we expect the CBC to keep its policy rate unchanged at 2.00% in December, though a persistent TWD weakness may increase the upside risk at the margin."

"Yesterday, the CBC officials encouraged the exporters to convert their US dollar proceeds whenever the conditions are favourable and also urged the banks to fulfill exporters’ US dollar conversion needs."

"With a Democratic sweep, we could expect a lower US yield tail risk, which should provide some support for semiconductor valuations and Taiwan equities."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)