Taiwan Dollar Tizzy Telegraphs US Asset Siege

The past week’s daily 5% Taiwan dollar spurt against its US counterpart, not seen since the dawn of emerging markets in the late 1980s, marked a sharp turnaround in island fortunes from the first four months of the year, while pointing to likely Asia FX winners despite the Trump headline tariffs as they repatriate or try to hedge depreciating USD assets. MSCI’s FX index is an asset class leader up 5% with a weaker greenback trend apparent inflection point, and the TWD is actively traded accounting for 1% of global currency volume. Through April it was at the bottom of the Asia stock market heap with a 10% loss equal to Indonesia’s and had the worst foreign investor outflow showing in available high frequency data at $18 billion. The local dollar had appreciated less than 5% under close central bank “smoothing” intervention with its $775 billion pool, which so far has soothed US Treasury disquiet in consecutive administration currency manipulation reports while it stays on a monitoring list for an outsize current account surplus close to 15% of GDP.

The Trump reciprocal tariff unveiled for a 3-month negotiating period was over 30%, but semiconductor exports were excluded as a strategic category. It is in the top four weights in the composite MSCI index largely due to giant Taiwan Semiconductor (TSMC), which will plow hundreds of billions into US operations through end-decade as its Q1 profit jumped 60% to $10 billion. Taiwanese diplomats have floated a zero tariff offer but insist currency practice is off the table. Ironically had the Pacific Area free trade agreement not been rejected in President Trump’s first term it contained not only a ready mechanism for resolving bilateral commercial disputes but created an expert panel to deliberate FX regime differences.