On January 10, the exchange rate of the US dollar to the Taiwanese dollar (USD/TWD) surpassed the 33 mark, reaching a new high since 2016. Since October 2024, the Taiwanese dollar has been continuously depreciating, totaling a depreciation of about 5%. Bank managers predict that under a relatively strong US dollar, the Taiwanese dollar exchange rate will remain weak in the first half of 2025.
Nonfarm Data and US Dollar Strength Affect Taiwanese Dollar Exchange Rate
Recently, the US released December's nonfarm employment data, far exceeding expectations, with an increase of 256,000 jobs compared to the market expectation of 160,000. This robust data significantly reduced market bets on a Federal Reserve rate cut in 2025, driving the US dollar to continue strengthening. Against this backdrop, pressure on the Taiwanese dollar to depreciate has noticeably increased.
Strong Wait-and-See Attitude Among Exporters
Bank managers noted that the depreciation of the Taiwanese dollar is usually supported by exporters selling foreign exchange, but this time, the amount being sold has not significantly increased, reflecting a widespread wait-and-see attitude among exporters, who are waiting for higher exchange rates before acting. Some exporters have even set their targets above the 33 mark. Overall market sentiment is mostly bearish, and the possibility of further depreciation of the Taiwanese dollar remains.
Potential Impact of Taiwanese Dollar Depreciation
The depreciation of the Taiwanese dollar has distinct effects on exports and imports. On one hand, depreciation increases the price competitiveness of Taiwanese goods, enabling foreign buyers to purchase more Taiwanese products with the same amount of foreign currency, thereby enhancing the attractiveness of Taiwanese exports.
On the other hand, depreciation is challenging for importers, especially for companies reliant on imported raw materials, as it directly increases cost pressures. This cost increase may be passed on to consumers, resulting in domestic price rises and exacerbating inflationary pressures.
Market Outlook and Analysis
With the continued strength of the US dollar and the influence of Federal Reserve policy expectations, the Taiwanese dollar is likely to maintain a weak stance in the first half of 2025. Analysts suggest that export companies take advantage of the exchange rate benefits, while import businesses need to develop effective cost control strategies to cope with the challenges brought by the depreciation of the Taiwanese dollar. Looking ahead, the market needs to closely monitor the direction of US monetary policy and the performance of Taiwan's foreign trade data to further assess the profound impact of exchange rate changes on the economy.
