The Taiwanese economy contracted for the third straight quarter in Q1 2016. The GDP growth shrank 0.84% y/y. The economy is expected to record a full-year growth of 1.9% in 2016, according to Commerzbank. However, the weakness in recent data signals that the forecast faces risks on the downside, added Commerzbank.
Meanwhile, there are rising possibilities of rate reductions, particularly after the Fed’s dovish statement recently. Furthermore, the Taiwanese dollar has stayed strong in 2016. This is slightly not in line with the economic fundamentals.
However, the Taiwanese central bank is expected to lower the policy rate that is likely to weaken the Taiwanese dollar, noted Commerzbank. The bond market expects the central bank to further ease policy as the 10-year government bond yield plunged to multi-year lows.
“We think that there is little downside risk in USD-TWD for the time being”, said Commerzbank.
