Short-Term Drivers: Equity Outflows and Monetary Policy
We see the USD/TWD pair continuing its upward trend, driven by significant outflows from Taiwanese equities. A global correction in technology stocks, with the NASDAQ Composite falling over 7% in the last two weeks, is prompting foreign investors to pull capital out of the region. This short-term sentiment is currently the dominant force in the market. We do not expect any support for the TWD from the central bank meeting on June 18th. Despite May’s inflation hitting 2.2%, the CBC has signaled it will hold its policy rate at 2%, a level maintained for the past year. This dovish stance, prioritizing stability amid global uncertainty, suggests the bank will tolerate higher inflation for now. Given this environment, we are looking at short-term derivative positions that favor continued TWD weakness. Buying USD/TWD call options with expirations in late June or July appears to be a prudent strategy. This allows us to profit from the ongoing upward momentum in the currency pair through the upcoming central bank decision.Medium-Term Fundamentals: Export Strength and Market Opportunities
However, we must watch the fundamental picture, which tells a very different story of incredible strength. Taiwan’s exports are surging on AI-related demand, with recent data from the Ministry of Finance showing semiconductor exports now account for over 40% of the total. This underlying economic power, driven by a global AI infrastructure build-out, creates a strong floor for the TWD in the medium term. We will be closely monitoring the TAIEX and foreign fund flow data for signs of stabilization. Historically, such tech-driven outflows can reverse quickly once global sentiment shifts, as seen in the sharp rebound following the 2022 downturn. A break below key support levels in the USD/TWD pair could be a signal to consider put options to position for a TWD recovery.Start trading now — click here to create your real VT Markets account.
