Deutsche_Bank-Asia_Macro_Strategy_Notes_Whats_next_for_the_TWD-115232217_10页_1mb

Strategist
Against the backdrop of a weaker USD, the recent movement in the Taiwan Dollar (TWD) is notable for its magnitude and record-breaking nature. The USD/TWD NDF rallied by approximately 6.7%, while the USD/TWD spot rate plummeted by roughly 3%. This exceeds the move during the 2000 tech bubble burst and the TWD's YTD movement is twice its 10-year average absolute move.

Primary drivers identified are strong equity inflows (~$2bn MTD) and persistent USD selling by exporters (FX deposits fell ~$4.6bn). An additional factor is ongoing ETF repatriation by residents (~$5.7bn since March). Rising lifer hedging ratio (to ~57%) also adds support.

Four key factors to monitor:

1. Further resident asset repatriation: Taiwan has the largest net/private IIP in the region (outside financial hubs). Lifers' substantial ETF holdings (~$88bn) mean ongoing repatriation will support TWD.
2. Increased need for hedging: The recently strong TWD suggests authorities won't intervene directly. The high cost of NDF hedging (~$4bn per 1% increase) encourages proxy hedging using KRW/SGD.
3. Authorities' potential inaction managing volatility: Governor prefers market determination, accepting TWD is within its +/-5% band.
4. Return of foreign equity flows: Foreign ownership fell; robust electronics exports and AI growth support continued but slower foreign equity inflows.

Deutsche Bank recommends caution despite the TWD's recent strength. We prefer to be short USD/DKK via CNH and KRW, rather than taking a long position in the TWD due to negative forward points.