Chip downturn to fuel more Taiwan dollar losses as exports slow

THE Taiwan dollar's fortunes look set to take a turn for the worse as slowing export growth and a resurgent greenback weigh on the currency.

Equity outflows and tensions in the Taiwan Strait are also exerting pressure on the local dollar, while a technical indicator suggests it may slide to 31.418 per greenback after touching a 3-year low of 30.599 Friday (Sep 2).

Traders are reassessing bullish bets towards emerging markets as China's economy cools and a 3-month rally in the dollar shows few signs of easing. The trade-reliant island is contending with waning demand for its tech shipments, with the worst semiconductor downturn in a decade expected to hurt its chipmakers.

"The Taiwan dollar will continue to see headwinds from the USD volatility, the slowdown in global trade and the global tech cycle which looks to have passed its peak," said Eddie Cheung, senior emerging markets strategist at Credit Agricole CIB in Hong Kong.

The island's currency has fallen almost 10 per cent against the greenback this year to underperform most of its Asian peers.

Trade data due Wednesday may reinforce the weakening trend. Taiwan's export growth probably slowed to 10.5 per cent in August on year from 14.2 per cent in July, according to a Bloomberg survey of economists.

Export orders unexpectedly fell in July as demand from Chinese customers plunged, and officials have warned of further declines. In another sign of weakness, the island's purchasing managers index declined to the lowest since May 2020 last month.

Technicals point to more losses for the local dollar. The US-Taiwan dollar pair is closing in on a key resistance level at 31.418, the 61.8 per cent Fibonacci retracement of its January 2016 to June 2021 decline.

Stock outflows are another dampener after global funds withdrew over US$6 billion from Taiwan's shares this quarter.

"Equity flows backdrop for the Taiwan dollar is likely to remain challenging with foreign investor positioning in Taiwan equities still remaining relatively heavy, versus peers like Korea, despite having been reduced since last year," said Mayank Mishra, a global macro and currency strategist at Standard Chartered in Singapore. BLOOMBERG

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