USD/TWD likely to trade in range of 29.0-29.5 with downside risk in short-term, says Scotiabank

The USD/TWD currency pair is expected to trade in a range of 29.0-29.5 with downside risk for now. Investors remain cautious as the US Department of the Treasury will release its semi-annual FX policy report due in mid-April, according to a recent research report from Scotiabank.

The new CBC Governor Yang Chin-long is scheduled to testify at the Finance Committee of the Legislative Yuan for the first time on Thursday. The central bank is expected to stay on hold next Thursday as central bank chief Yang said in a written report released Tuesday that Taiwan’s CPI inflation will remain benign and stable this year and that real interest rates are appropriate. Due to favorable base effect, the island’s CPI inflation is likely to start to ease from June onwards.

The CBC reckoned that Taiwan retains its export competitiveness despite the TWD’s appreciation against the USD. The TWD is still cheaper compared to the CNY, KRW and SGD in terms of the NEER, according to the central bank. In addition, the CBC in the report advised local companies to reduce their FX exposure through hedging operations.

"A rise in US labor force participation rate in February suggests the presence of labor market slack that would keep Fed policymakers on track for a gradual pace of rate hikes. It will spark risk appetite and boost risky assets including EM Asian currencies to some extent, in our view. Meanwhile, we stay vigilant on US political uncertainty that could dent global risk sentiment intermittently," the report added.

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