The Taiwanese dollar has hit its lowest point since April of last year, wiping out the gains from last year’s significant rally. This decline is mainly driven by a strong U.S. dollar and record dividends, which are affecting market sentiment.
In the Taipei market yesterday, the currency dropped by 0.6%, ending at NT$32.178 against the U.S. dollar. This decline has undone the impressive gains made since May of last year, when the dollar experienced its largest rally since the 1980s, bolstered by easing trade tensions and robust profits from tech companies.
Now, the Taiwanese dollar faces a crucial moment as the peak dividend season kicks off this month. Given the semiconductor sector’s heavy foreign investment, the conversion to U.S. dollars is expected to speed up. Domestic businesses are set to distribute over NT$2.5 trillion (approximately US$77.69 billion) in cash dividends this year, according to Taiwan Stock Exchange data.
This figure marks the highest recorded by Bloomberg since 1990.
The risk of economic downturns is increasing, with a strong dollar driven by expectations of prolonged high U.S. interest rates and a rebound in oil prices due to renewed tensions in the Middle East presenting more challenges for Taiwan’s currency.
Koon Goh, head of Asia research at Australia New Zealand Banking Group, noted, “The current weakness in the Taiwan dollar seems to stem from the repatriation of dividends.” He highlighted that the recent quarterly dividend payment from Taiwan Semiconductor Manufacturing Co., Ltd. adds to the pressure on the Taiwan dollar due to significant foreign ownership.
Goh anticipates that the currency will face short-term pressure, possibly dropping to NT$32.5 against the U.S. dollar as more dividends are paid out later this month.
Yesterday’s significant drop in the Taiwanese dollar was attributed to large outflows of money from foreign investors, according to several traders.
While exporters and state-run banks temporarily mitigated losses by selling U.S. dollars in the morning, strong capital outflows ultimately put further strain on the local currency.
Earlier this week, the central bank instructed local banks to process large dollar sell orders on the same day they were received, rather than delaying or deferring them. This action came as the Taiwanese dollar experienced a seasonal dip. The central bank routinely monitors foreign exchange transactions, including those from exporters and life insurance firms, providing guidance to encourage the execution of large U.S. dollar sell orders when the Taiwanese dollar depreciates.
Fiona Lim, a senior currency strategist at Malayan Banking, mentioned that developments in the Middle East will likely influence the currency’s trajectory. “We must keep an eye on U.S. and Iranian news stories and U.S. data to see if the pressure on the Taiwan dollar remains. An accelerated decline might lead to more comprehensive intervention,” she cautioned.
