Taiwan currency worst in Asia as trade war hits its tech sector

[TAIPEI] Taiwan's currency has gone from the dullest to the worst in Asia amid an outflow of overseas cash as the trade war undermines the outlook for the island's dominant tech sector.

The Taiwan dollar has tumbled 1.4 per cent in the past five days, the biggest loss among regional peers and second-worst in the world after the Colombian peso. Foreign funds have sold more than US$2 billion of local equities in May, the biggest outflows in Asia, as the US administration targeted China's Huawei Technologies and a slump in the yuan pressured other exporter currencies. It fell 0.3 per cent Wednesday to 31.55 per US dollar, its weakest in more than two years.

"The Taiwan dollar may drop below the 32 level in the coming weeks before it stabilizes," said Gao Qi, a currency strategist at Scotiabank in Singapore. "Foreign outflows are likely to continue amid concerns that the trade war won't be resolved any time soon."

Taiwan's currency - which traded in a narrow range for most of the year - is yet another casualty of the trade dispute between China and the US The losses accelerated just as the focus shifted to China's technology firms and their vast supply chain. It's particularly painful for Taiwan's equity market as four out of its ten biggest firms supply Huawei. Investors who pull out of local equities also dump the local currency.

Before the Huawei news, the Taiwan dollar had the smallest price swings among 31 major currencies tracked by Bloomberg, excluding the pegged Hong Kong dollar. The options market shows traders expect the swings will increase, with one-week implied volatility surging to the highest since November on Monday.

The currency could soon test 31.80 a dollar as a support level, the upper limit of a breakout gap seen in January 2017, according to Christopher Wong, a senior FX strategist at Malayan Banking Bhd. He expects the decline will continue as the market is more driven by bearish sentiment now.

BLOOMBERG