Taipei, The Taiwan dollar surged about 5.6 percent against the U.S. dollar in 2020 as foreign investors kept moving funds into the region as major central banks around the world pumped large funds into the market to fend off the economic impact caused by the COVID-19 pandemic, dealers said Friday.
The local central bank stepped into the market often to prop up the U.S. dollar and slow the appreciation of the Taiwan dollar in recent sessions, the dealers said, adding that otherwise, the local currency would have jumped further.
On Thursday, the last trading session of the local foreign exchange market for 2020, the U.S. dollar rose NT$0.010 to close at NT$28.508 against the Taiwan dollar after coming off a low of NT$28.095 on the back of apparent buying by the central bank.
For the whole of 2020, the U.S. dollar fell NT$1.598, or 5.6 percent, against the Taiwan dollar.
On Jan. 30, 2020, the first trading session after a seven-day Lunar New Year holiday, the U.S. dollar surged NT$0.271 against the Taiwan dollar to close at NT$30.277 after the benchmark weighted index on the main board plunged almost 700 points in the wake of massive fund outflows amid the COVID-19 pandemic outbreak.
But with several central banks, in particular the U.S. Federal Reserve, adopting quantitative easing to take on COVID-19-related economic harm, foreign funds continued to enter the region to boost non-U.S. dollar currencies against the greenback, the dealers said.
In Taiwan, the U.S. dollar faced headwinds at a time when the benchmark weighted index on the local main board started to bounce back from a low in mid-March amid ample liquidity, the dealers said.
The greenback then moved in a downtrend, falling below the NT$30.00 level against the Taiwan dollar in late May and dipping below the NT$29.00 level in late October. It declined further in the following sessions.
In the last several trading sessions of last year, the U.S. dollar even fell below the NT$28.100 level at one point during the trading before the central bank’s constant presence in attempts to bolster the currency.
On Dec. 16, the U.S. Treasury Department released the semi-annual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners. The report included Taiwan on a list of economies that the U.S. will monitor for currency manipulation, the first time Taiwan had been included on the watch list since 2017.
“Taiwan should allow the new Taiwan dollar to appreciate to help reduce its large and durable external surpluses,” the U.S. Treasury said in the report.
In response to the report, Yang Chin-long (楊金龍), governor of Taiwan’s central bank, said the bank is determined to stabilize the local forex market, which he said is more important than the U.S. Treasury’s report.
Yang added, however, that a move by the Fed to ease its monetary policy to inject large funds into the economy has posed challenges for Taiwan in its attempts to maintain the stability of the forex market.
The dealers said Taiwan’s economy has outperformed many other economies around the world due to its effective efforts to fend off COVID-19.
Under such circumstances, foreign investors are expected to move more funds into Taiwan, a move that is likely to add downward pressure on the U.S. dollar in the local forex market, they said.
The dealers contended that while the central bank is expected to continue its intervention, more fund inflows are expected to push down the U.S. dollar below the NT$28.000 mark against the Taiwan dollar and that such a low in the greenback’s value is just a matter of time.
Source: Focus Taiwan News Channel