Taiwan dollar hits three-year high, pressuring exporters and insurers

Taiwan’s currency surged to its strongest level in three years on Thursday, buoyed by robust foreign inflows into its stock market and widespread weakness in the US dollar.

The Taiwan dollar appreciated as much as 0.7% to 29.15 per US dollar, outperforming most Asian currencies in the session.

According to Bloomberg, some traders cited exporter sales of the greenback and fund repatriation by domestic asset managers as key drivers of the appreciation.

Last month, the Taiwan dollar recorded its largest single-day gain since the 1980s and has climbed over 12% against the US dollar so far this year.

Exporters and insurers face mounting pressure

While a stronger currency lowers the cost of imports, it creates considerable strain on Taiwan’s export-reliant economy and its life insurance sector, which holds extensive overseas dollar-denominated assets.

Taiwanese insurers reported a $1.2 billion foreign exchange loss in May alone, prompting the financial regulator to introduce temporary relief measures.

These include relaxed capital adequacy calculations in insurers' semi-annual financial reports, aimed at cushioning the blow from volatile exchange rate movements.

“To some extent, the Taiwan dollar may risk entering into a vicious cycle of strength, as exporters, financial institutions rush to sell the US dollar,” Christopher Wong, senior foreign-exchange strategist at Oversea-Chinese Banking Corp Ltd said in the Bloomberg report.

TSMC acts to shore up hedging amid currency risk

The volatility has also reached Taiwan’s flagship firm, Taiwan Semiconductor Manufacturing Co. (TSMC), which announced plans to inject $10 billion into an overseas unit to strengthen its currency hedging.

This marks the company’s largest capital injection for such purposes and signals the growing risks associated with the Taiwan dollar’s rapid ascent.

State-owned banks were seen buying the greenback to temper the rally, though at limited scale, suggesting the central bank remains cautious in intervening too aggressively.

Central bank emphasizes long-term resilience

Despite concerns, central bank Deputy Governor Yen Tzung-ta told lawmakers that Taiwan’s economy has shown resilience to currency swings in the past.

He pointed to the 2019–2022 period when the Taiwan dollar appreciated to 27.532 per US dollar, yet the economy posted 4.3% GDP growth and a 13.9% rise in exports.

Between 2022 and 2023, listed companies in Taiwan recorded foreign exchange gains of NT$474.9 billion (US$16.1 billion), compared to cumulative losses of NT$116.7 billion from 2015 to 2021, he said.

"Many firms also manage their foreign exchange exposure through forward contracts or natural hedging strategies, limiting their vulnerability to short-term swings," he said in a Taipei Times report.

Currency may test 29 level soon

Khoon Goh, head of Asia research at Australia & New Zealand Banking Group, said the Taiwan dollar is facing renewed appreciation pressure due to a weaker US dollar and continued equity inflows, supported by easing tensions in the Middle East.

Meanwhile, “local exporters still have a lot of dollars to sell given the strength in exports, and life insurance companies will want to manage their currency risk by hedging more in case of further US dollar weakness,” he added.

“It only seems a matter of time before Taiwan dollar’s key level of 29 is surpassed.”

The central bank reiterated its commitment to exchange rate stability but acknowledged the challenges ahead.

As the currency’s rise cuts both ways, Taiwan’s policymakers and corporates are being forced to walk a careful line between economic competitiveness and financial stability.