Taiwan’s Currency Surge Amid Trade Concerns
Taiwan’s currency has seen its largest two-day rise in decades, spurring life insurance companies to hedge their exposed U.S. holdings. This surge has been prompted by anxieties surrounding potential exchange rate clauses in trade contracts involving Donald Trump.
The new Taiwanese dollar, which had already gained momentum when trading resumed on Monday, climbed another 2.5% against the U.S. dollar, bringing its total two-day increase to 6.5%. Since its introduction in April, the dollar’s rise has approached 10%.
This swift change in Taiwan’s currency underscores how the U.S. trade war is impacting the global economy. Such fluctuations could threaten Taiwan’s export-driven economy, putting local life insurance firms’ investments in U.S. assets at risk.
“Local exporters are really anxious, and the sentiment among policyholders isn’t great either, though outflows from stocks seem to have leveled off,” said Ju Wang, a strategist at BNP Paribas in Hong Kong. “The central bank remains the only active buyer, but its lack of direct market support leads to speculation that the currency’s fluctuations are tied to trade negotiations,” she added.
Taiwan’s life insurance companies hold a staggering 1.7 trillion in overseas assets, with a significant portion in U.S. bonds, including Treasuries and corporate debts. Yet many of these insurers don’t hedge against currency shifts, which means they could suffer losses if the U.S. dollar depreciates. Analysts suggest that trying to manage these risks during a market downturn might worsen the impact.
The recent currency rise seems further driven by speculation regarding potential provisions within a trade agreement with the U.S. that could formalize support for Taiwan’s currency, possibly impacting its competitive edge.
On Friday, Taiwan’s central bank refuted suggestions that the U.S. Treasury had requested a currency valuation as part of the trade talks.
Jo Wang expressed skepticism about the economic implications: “Officially, the currency’s value isn’t recognized as central to negotiations, but market sentiment indicates otherwise. The overvalued U.S. dollar is often viewed as the main factor behind trade imbalances,” she noted.
Fueled by its robust semiconductor industry, Taiwan ranks as the seventh largest trading partner for the U.S., with a trade surplus of $740 billion noted in 2024.
Shares of TSMC, the largest semiconductor manufacturer globally, dropped by 1.3% on Monday, as a weaker U.S. dollar could negatively affect its profitability in local currency terms.
