Taiwan – USD-TWD to grind higher

The Taiwan dollar (TWD) is gradually paring its early-year gains. TWD strength in 2015 has been driven primarily by strong equity inflows, underpinned by a rising trade surplus. 

Year-to-date, foreign investors have been net buyers of more than USD 8.6bn of Taiwan equities, spurred by news of a potential Shanghai-Taipei Stock Connect programme and other measures to increase links between Taiwan's equity markets and Asian peers. 

However, equity flows are showing signs of slowing, and the uptick in the USD and USD-JPY may make the authorities less tolerant of TWD appreciation.
 
USD-TWD has already retraced from its lows in May, but the TWD's elevated trade-weighted value and recent weak export data should support a move back above 31.00. 

"We forecast USD-TWD at 32.00 by end-2015", said Standard Chartered in a report on Wednesday.