Taiwan dollar strongest in Asia, surges almost 3% against U.S. dollar

The Taiwan dollar got a boost from the country's strong export performance and became the strongest currency in Asia last year, after soaring almost 3 percent against the U.S. dollar in 2021.

The Taiwan dollar closed at NT$27.690 against the U.S. dollar on Dec. 30, 2021, the highest level in the last trading session in 25 years, up NT$0.818 or 2.95 percent. The growth of the local currency was the highest in Asia in 2021, higher than the Chinese yuan, which rose about 2.7 percent against the U.S. dollar.

In 2021, several other regional currencies came under pressure. The South Korean won shed about 8.6 percent and the Japanese yen tumbled by more than 10 percent.

Dealers said the Taiwan dollar benefited from Taiwan's strong export growth as global demand for tech gadgets remained solid on the back of emerging technologies such as 5G applications, high performance computing devices, the Internet of Things and automotive electronics.

In addition, old economy industries, including steel makers, also saw a strong cyclical recovery, which pushed up exports further and in turn paved the path for a higher Taiwan dollar, dealers said.

In the first 11 months of last year, Taiwan's exports hit US$405.75 billion, up 30 percent from a year earlier. With imports reaching US$346.23 billion, up 33.8 percent from 2020, the country enjoyed a trade surplus of US$59.52 billion, up 11.7 percent from a year earlier.

In November alone, Taiwan's outbound sales totaled US$41.58 billion, up 30.2 percent from 2020, marking the 17th consecutive month of year-on-year growth.

Dealers said the strong exports led many exporters to convert their greenback received overseas into the Taiwan dollar, which shored up demand for the local currency.

A strong showing made by the local equity market also provided support for the Taiwan dollar as many local institutional investors preferred to keep funds in Taiwan instead of moving their money overseas for investments.

In 2021, the Taiex, the weighted index on the Taiwan Stock Exchange, soared 3,486.31 points or 23.7 percent to close at 18,218.84 points on Dec. 30, the last trading session for the year. The index growth was the third highest in the main board's history.

In addition to a global economic recovery, dealers said, the COVID-19 pandemic has forced the restructuring of a global supply chain and in turn prompted many Taiwanese investors with overseas operations to return to Taiwan to invest, which boosted their capital expenditure and further pushed up demand for the Taiwan dollar.

Dealers said these factors which favor a stronger Taiwan dollar offset the impact resulting from a rise in the U.S. dollar index, which gauges the movement of the greenback against the six currencies of Washington's major trading partners on expectations that the Federal Reserve will kick off a rate hike cycle.

Dealers added the local central bank tended to enter the foreign exchange market in the late trading session by buying into the U.S. dollar to cap the upturn of the Taiwan dollar.

Looking ahead, dealers said Taiwan's gross domestic product (GDP) is expected to grow by more than 4 percent in 2022, when export growth could continue to stay strong, so the Taiwan dollar could maintain its momentum.

However, as the Taiex has moved sharply higher last year, the room for the index to move much higher could be limited this year, dealers said. At the same time, retail investors and life insurance companies could relocate their funds overseas, which could cap the Taiwan dollar's strength to some extent.

Source: Focus Taiwan News Channel