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Taiwan’s currency has recorded its largest two-day jump in decades, as life insurers moved to hedge their exposed US portfolios and markets fretted that a trade deal with Donald Trump might include the exchange rate.
Extending its gains when trading opened on Monday, the New Taiwan dollar rose by another 2.5 per cent against the greenback, taking its two-day gain to 6.5 per cent. Its total rise since the start of April is almost 10 per cent.
The sudden currency movement in Taiwan shows how the impact of the US trade war is rippling through the global economy. It could harm the competitiveness of the island’s export-oriented economy and expose Taiwanese life insurers to losses through their holdings of US assets.
“Local exporters are panicking, and local lifers are under-hedged, while equity-related outflows have ceased,” said Ju Wang, a strategist at BNP Paribas in Hong Kong.
“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,” she said.
Taiwan has a huge pile of overseas assets amounting to $1.7tn, much of it in the form of US bonds — including Treasuries and corporate debt — held by its life insurers.
However, many of those insurers have not hedged their currency exposure, so they are exposed to losses when the US dollar falls. A rush to hedge those risks in a falling market might have exacerbated the currency’s move, said analysts.
The currency jump has been exacerbated by speculation that a possible trade deal with the US could include provisions to strengthen the Taiwanese currency and make it less competitive.
In a statement released on Friday, Taiwan’s central bank denied claims that the US Treasury department had requested an appreciation in its currency as part of a trade deal.
BNP’s Wang was sceptical. “While no economy would officially acknowledge that currency valuation is a point of negotiation, market expectations indicate otherwise. This is particularly notable given the Mar-a-Lago [accord]’s emphasis on an overvalued US dollar being a root cause of the US’s trade imbalances.”
Driven by its globally competitive semiconductor sector, Taiwan is the seventh-largest US trading partner. In 2024, it had a trade surplus of $74bn with the US.
Stock in TSMC, the world’s biggest contract semiconductor producer, fell 1.3 per cent on Monday. A weaker US dollar would hurt TSMC’s profits in local currency terms.
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