CBC likely to leave policy rate unchanged at 1.375 pct; Fed funds futures price in 73 pct chance of December rate hike: Scotiabank

The Central bank of the Republic of China (Taiwan) is expected to leave its policy rate unchanged at 1.375 percent on Thursday afternoon, even though the Fed Funds Futures market has priced in a 73 percent chance of a December rate hike. Taiwan’s CPI inflation will stay benign in December on the back of the base effect, according to the latest research report from Scotiabank.

On the FX side, USD/TWD NDF is trading at a par to USD/TWD FX forwards, suggesting neutral market expectations of the TWD exchange rate at present. Meanwhile, we saw signs of easing US-China trade tensions, which are supportive of currencies of export-driven economies in the region, such as the TWD.

US President Donald Trump tweeted Saturday that China "wants to make a big and very comprehensive deal," adding that "it could happen, and rather soon!" Earlier on Friday, China said it will temporarily remove the additional 25 percent tariffs on car imports from the US for three months starting January 1, citing the December meeting between US President Donald Trump and Chinese leader Xi Jinping.

The White House also officially delayed a rise in tariffs on USD 200bn of products to 2 March from January 1. China is said to hold the ceremony celebrating the 40th anniversary of the "Reform and Opening-up" initiative and the annual Central Economic Work Conference on Tuesday to deepen reform and opening-up and step up efforts to boost its economy. It could improve regional and global risk sentiment dented by plunging US stocks.

"We maintain our short USD/TWD position targeting 30 on hopes for reflation policies to be rolled out by major economies amid escalating risks of a synchronized global slowdown. In the near term, however, continued US stock selloffs will cap upside room for TWSE Index and contain the TWD strength," the report commented.