(Bloomberg) — Currency traders are betting that Taiwan’s central bank will struggle to prevent the local currency from rising versus the greenback after after a key resistance level was broken.
The Taiwan dollar on Thursday charged past 28.5 to its strongest intraday level since 1997. It traded around 28.3 Friday, with two traders saying state-backed banks were buying U.S. dollars around that handle. The traders asked not to be identified commenting publicly on the market.
The 28.5 level carries special significance in Taiwan, where it is called the “Perng Fai-nan line” after the central bank governor from 1998 to 2018. Perng is credited with mostly keeping the currency from appreciating past that mark from the Asian Financial Crisis to his last day on the job, primarily to protect exporters.
Now the question for traders is where Perng’s successor and long-time deputy Yang Chin-long will draw the next line in the sand — and how long that will hold. The Taiwan dollar has rallied more than 5% this year through Thursday as the local economy proved resilient during the virus pandemic and benefited from companies bringing some of their manufacturing home from China amid friction between Washington and Beijing. One-month forwards on the Taiwan dollar are at a record low, signaling further gains ahead.
There are “very strong expectations” that Taiwan’s currency will advance, said Zhou Hao, senior emerging markets economist at Commerzbank AG. “It will be very difficult for there to be any significant retreat in the near term.”
The Taiwan dollar’s new high on Thursday came the day after Yang promised lawmakers he would provide more information about efforts to curb the currency’s advance.
From Nov. 6 to the day of that pledge, the Taiwan dollar saw intraday climbs capped at around the 28.5 level. Sharp sudden swings especially around the final half hour of trading would then wipe out the gains. Yang has referred to those types of moves as “smoothing,” and such intervention can draw the attention of the U.S. Treasury.
The Taiwan dollar was up 1.4% at 28.26 versus the greenback as of 2:20 p.m. in Taipei.
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