Taiwan Dollar: Flow-driven weakness with policy support – OCBC

OCBC Bank’s Sim Moh Siong and Christopher Wong note that Taiwan Dollar (TWD) remains on the back foot, with USD/TWD above 32, driven mainly by foreign equity selling and dividend/remittance-related US Dollar (USD) demand rather than weaker fundamentals. Authorities are encouraging quicker execution of large USD sell orders to mobilise natural supply, while exporter USD selling and CBC guidance may reduce the risk of a disorderly move higher in USD/TWD.

Vulnerable on flows but disorderly spike risk tempered

"TWD has stayed on the back foot, with USD/TWD breaking above the 32 handle. The move looks largely flow-driven rather than a deterioration in domestic fundamentals. Foreign equity selling has weighed on Taiwan equities and added to USD demand, while dividend/profit remittance flows also added to seasonality demand for USD."

"CBC officials have framed recent FX weakness as largely USD-led but also pointed to portfolio flows and elevated Taiwan equity valuations as factors weighing on TWD. Elsewhere, there were reports saying that the CBC had asked local banks receiving large USD sell orders to complete the transactions on the same day, rather than delaying or staggering execution."

"This suggests the authorities are hoping to bring forward more natural USD supply to help tame TWD depreciation pressure."

"Bullish momentum on daily chart intact while RSI rose into overbought conditions. Upside risks persist but not ruling out the risk of snapback. Resistance at 32.22 (76.4% fibo retracement of 2025 high to low), 32.50/60 levels. Support at 31.95, 31.76 (21 DMA)."

"Near term, TWD may remain vulnerable if foreign equity outflows persist and USD sentiment stays firm into the FOMC minutes. But the presence of exporter/USD-selling supply, alongside CBC guidance to smooth execution, may partially help to reduce the risk of a disorderly move higher in USD/TWD."

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