TWD likely to consolidate, pare some of recent gains should risk aversion resurface: Scotiabank

The Taiwanese dollar is expected to consolidate and then pare some of its recent gains should risk aversion resurface, according to the latest report from Scotiabank. The ECB to debate QE exit will see EUR/USD heading for 1.20 while spurring concerns over global liquidity withdrawal and undermining EM Asian currencies including the TWD.

Meanwhile, risk aversion will certainly resurface in emerging markets as the 10-year United States Treasury yield will likely test the 3.0 percent mark again despite subdued VIX index. It would drag down the TWSE share index once more.

The TWD has been appreciating amid risk-on sentiment since end-May, in line with sliding DXY index and rising TWSE share index. In our opinion, a tight correlation between the TWD and the DXY index suggests that market forces are now playing a bigger role in determining the TWD exchange rate.

Taiwan’s listed companies are set to pay cash dividends worth around TWD1.29 trillion in the upcoming June-August period. Data from Securities and Futures Bureau indicated that foreign holdings in local stocks stood at USD207.75 billion or 37.96 percent of total market value as at end-April. On June 25, foreign shareholders of TSMC will receive about TWD 160bn out of total TWD207.4 billion cash dividends.

"On the ex-dividend day, we could see rising demand for USD/TWD. We would like to buy EUR/TWD cross with a target of 36.0," the report added.

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