8 July, Taipei (CNA) Despite fresh concerns about the Federal Reserve possibly resuming its rate rise cycle, traders said the U.S. dollar maintained its momentum from the previous week, making a solid performance this week to record a new high versus the Taiwan dollar.
The U.S. dollar gained NT$0.110 versus the Taiwan dollar on Friday, finishing at NT$31.330. This is the highest level the greenback has reached against the Taiwan dollar since November 11, 2022, when it finished at NT$31.410. This is also the third consecutive trading session in which the American unit has moved higher on the local currency market.
For the sixth week in a row, the U.S. dollar appreciated versus the Taiwanese currency, gaining NT$0.195, or 0.62 percent.
Many investors are betting that the Federal Reserve will resume its rate hike cycle in the next policymaking meeting scheduled for 25-26 July, after pausing in June, and this has led to a sell-off in the Taiwan dollar, according to dealers. The U.S. dollar index tracks the value of the currencies of Washington’s six major trading partners.
Those hopes were bolstered by a report from payroll processor ADP on Thursday suggesting that the private sector added 497,000 jobs in June, which was far higher than the 220,000 jobs predicted by the market. This showed that the U.S. employment market remained robust despite the Fed’s recent aggressive rate rises.
The Taiex, the weighted index of the Taiwan Stock Exchange, dropped 97.96 points, or 0.58 percent, to 16,664.21 on Friday as foreign institutional investors stood on the sell side in response to overnight volatility in the U.S. markets due to concerns over a hawkish Fed.
The significant selling by foreign institutions on Thursday contributed to a 1.73 percent drop in the Taiex on Friday.
According to the TWSE, foreign institutions sold a net NT$69.54 billion (US$2.22 billion) in shares on the main board this week, with Thursday seeing the largest single day of selling at NT$38.75 billion.
According to the market, the Taiwan dollar was further devalued by the significant net sale by foreign institutional investors, which helped to further raise the U.S. dollar for the week.
Dealers have said that the central bank of Taiwan entered the market to buy the Taiwan dollar to prevent further losses suffered by the local currency during the week as a result of foreign institutions moving funds out of the local market and into greenback denominated assets due to expectations of a higher U.S. dollar.
Dealers also pointed out that the Taiwanese dollar was able to weather the storm of a higher U.S. dollar index because Taiwanese exporters sold U.S. dollars they possessed to fulfil fund demand.
As a result of the widespread belief that the Federal Reserve will raise its key interest rates later this month after the release of June’s non-farm payroll data, dealers have stated that the performance of the Taiwan dollar will largely depend on the actions of foreign institutional investors.
The United States added 209,000 jobs in June, which was below the 240,000 predicted by the market. However, the closely watched wages numbers were stronger than expected, with average hourly earnings up 0.4% month-over-month and 4.6% year-over-year.
The U.S. non-farm payroll report caused a 0.55 percent drop in the Dow Jones Industrial Average on Friday, and some dealers predict that this might lead to more foreign institutional sell-off on the Taiex next week, putting additional strain on the Taiwan dollar.
Dealers predicted that the U.S. dollar may soon hit NT$31.500 if foreign investors kept pulling money out of Taiwan.
