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Taiwan Dollar Hedging Frenzy Fades Amid US Trade Deal Uncertainty
31 Jul
Summary
- Taiwan dollar non-deliverable forward points drop as trade talks stall
- Global funds cut purchases of Taiwan stocks due to trade deal concerns
- Taiwan's main export competitors secure better tariff agreements
In the past few weeks, Taiwan has been experiencing a surge in currency hedging activities as global investors rushed to purchase Taiwan stocks. However, this trend is now starting to reverse as concerns grow over the island's ability to reach a trade deal with the US before a critical deadline.
According to the article, Taiwan dollar non-deliverable forward points, financial instruments used to hedge against currency risks, have recently slid as investors become more cautious about the island's trade negotiations with the US. The one-month and three-month US dollar-Taiwan dollar NDF points dropped significantly on Wednesday, indicating a reduced demand for hedging.
The article notes that Taiwan officials are working to secure an agreement with the US before the August 1st deadline, when a 32% reciprocal tariff on the island's exports will come into effect. However, Taiwan's main export competitors, such as Japan and South Korea, have already managed to secure more favorable tariff rates, putting Taiwan at a disadvantage.
As a result, global funds that had been actively purchasing Taiwanese securities may now be scaling back their investments, leading to a decline in the hedging activities that had previously driven up the Taiwan dollar's value. Experts warn that any disappointment in the trade deal could trigger an unwinding of these equity inflows, further impacting the island's currency.
