The Taiwanese greenback’s torrid rally | USAEMALL.com

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With the rest of FT Alphaville off today, this is now officially going to be a Taiwanese dollar blog. Fortunately for content reasons — and as we expected last week — our favourite Asian currency is having another special day.

At one point earlier today, Taiwan’s dollar had soared over 5 per cent against the dollar — crossing the 30 TWD per USD mark for the first time since the summer of 2022. At pixel time, it is still up another 3.2 per cent, extending what has been a pretty epic rally.

Trading has been “hectic” according to Bloomberg. Alphaville’s emphasis below:

The volume of US dollar-Taiwan dollar trades in Taipei early Monday jumped to the most since the 2008 global financial crisis. Banks have been bombarded with customer inquiries over the surge, with Cathay United Bank Co. introducing virtual queues on its online app to “maintain system stability.”

Despite the currency’s gains, Taiwan’s monetary authority hasn’t been seen actively intervening in the market Monday to limit its strength, though it typically does so to smooth out volatility.

“Local exporters are panicking, and local lifers are under-hedged, while equity-related outflows have ceased,” said Ju Wang, head of Greater China foreign-exchange and rates at BNP Paribas SA in Hong Kong. “The central bank remains the only buyer but has not been aggressively supporting the market, fueling speculation that currency valuation is part of the trade talks.”

That last bolded bit is the crucial driver, in FTAV’s opinion. As Brad Setser and Josh Younger wrote here earlier this year, the Taiwanese life insurance industry has become enormous over the past decade, and shovelled much of its assets into US bonds. But to maintain returns, they only partially hedged their swelling FX exposures, in practice betting their solvency on the TWD staying weak against the USD.

That bet was . . . unwise, as we can now seen. The TWD appreciation caused by the April 2 tariff shock has now been transformed into a wild, almost disorderly rally by Taiwanese lifers belatedly scrambling to pare back or hedge their US dollar exposures.

As an analyst told Bloomberg:

. . . “The moves over the past two sessions were really unprecedented, and if you’re exposed to the dollar as a lifer with little to no hedging, it’d been a painful ride,” says Mingze Wu, currency trader at Stonex in Singapore. “Taiwan life insurers are among the biggest holders of US bonds in Asia, so it makes sense that they’d be on their toes right now.”

Quite! The stocks of Cathay Financial Holding and Fubon Financial Holding — the parents of two of the biggest Taiwanese lifers — fell 6.8 per cent and 5.9 per cent respectively today.

In case you speak the language, the Taiwanese central bank is holding a press conference on the TWD right now.

Once we figure out what is being said we’ll update this post with anything interesting. 🍿🍿🍿

Further reading:

— How Taiwan became a quiet bond market superpower (FTAV)

— What does Taiwan have to do with US mortgage rates? (FTAV)

— Why Taiwan poses a threat to the US bond market (FT)