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The USD/TWD currency pair is expected to head for 30.5 level as global markets have started to take threat of trade war seriously, according to the latest research report from Scotiabank. USD/TWD NDF points are now trading at a premium to onshore DF points with the same tenor, indicating continued expectations of a further depreciation in the TWD.
In addition, Taiwan’s listed companies are set to pay cash dividends worth around TWD1.29 trillion in the June-August period, which will spark demand for the dollar to impose upward pressure on the currency pair.
The Central Bank of the Republic of China (Taiwan) (CBC) left its policy rate unchanged at 1.375 percent on Thursday afternoon as was expected, and raised its forecast of Taiwan’s CPI inflation and GDP growth for 2018 to 1.40 percent and 2.68 percent respectively from the March prediction of 1.27 percent and 2.58 percent.
According to the post-meeting statement, Taiwan’s central bank sees the economy slowing in the second half with a milder inflation. The CBC sees the output gap closing but remaining negative, suggesting it will not rush to raise benchmark interest rate in the third quarter.
The United States dollar index is likely to firmly rally through the October high of 95.15 with Fed-ECB policy divergence, which would open room for further upside and send USD/TWD higher afterwards. In addition, the TWD remains susceptible to an ongoing US-China trade dispute, together with the KRW and THB.
Meanwhile, China’s Commerce Ministry spokesman Gao Feng said on Thursday that the nation has no choice but to include US goods in a retaliatory tariff list if the US releases a new list of USD200 billion Chinese imports for duties. MNI reported yesterday that China and the US are making effort to avert tariff implementations.
"However, we think uncertainty surrounding US-China trade tensions will continue in the foreseeable future," the report.
