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USD/TWD is likely to slide further going forward while running a tight correlation with USD/CNH. The TWD is expected to trade in tandem with the CNH given their high correlation that has been increasing since mid-2017, according to the latest research report from Scotiabank.
China will tolerate more appreciation in the yuan to help reduce its merchandise trade surplus with the US as long as the DXY Index remains subdued. In addition, the EUR’s potential strength will prop up the CNH.
Further, the TWD exchange rate is expected to be increasingly determined by demand and supply under the new governor but with excessive movements filtered out in the meantime.
CBC Governor Yang Chin-long told the Finance Committee on March 15 that USD/TWD is not bound by a range of 29-30 and clarified that there is absolutely no the so-called "Yang’s defense line" that refers to a certain level needed to be defended for the TWD.
"We maintain our existing short USD/TWD position targeting 28.5. The pair is now anticipated to trade in a range of 29.0-29.5 with downside risk of falling below the lower bound," the report added.
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