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The Central Bank of the Republic of China (Taiwan) is expected to leave its policy rate unchanged at 1.375 percent on Thursday afternoon, rather than delivering a 12.5 basis points rate hike post the September 25-26 FOMC meeting, according to the latest research report from Scotiabank.
The TWD has been relatively stable amid recent equity inflows and will stay susceptible to the ongoing US-China trade war. Last Thursday, the PBoC and the HKMA signed a Memorandum of Co-operation for the tendering and issuance of PBoC bills, affirming the view that the central bank will certainly step in to curb one-way speculation on the yuan’s depreciation if necessary via pushing up CNH funding costs.
While China’s response to US President Trump’s new tariffs hasn't led to a panic among investors so far, its cancellation of this week’s planned trade talks with the US will dent market sentiment somewhat prior to the Fed’s September meeting.
Meanwhile, market forces are now playing a bigger role in determining the TWD exchange rate. The difference between the US and other economies’ rates will narrow going forward, which will likely see the DXY Index retreating further towards 92 then. The TWD could advance to some extent, catching up with gains in the DXY index, the report added.
"Some major risks that could dampen market sentiment are identified, including the escalated US-China trade war, the Fed’s hawkish stance and the elevated 10Y UST yield," Scotiabank commented.
