Summary: USD/NTD regained the 30 mark, Taiwan’s central bank said not to “take it lightly” on inflation; the market outlook focused on four changes in the Fed’s tightening; the 30 mark was lost and regained, or the 30.5-31.0 area may be attacked.
USD/NTD 30 mark lost and regained, Taiwan’s central bank said not to “take it lightly” on inflation
USD/TWD has shown an obvious “V-shaped” rebound situation in the past two weeks. In early February, the USD/TWD once broke through the 30 mark to a low of 29.42, setting an eight-month low since June 2022. However, the strong non-agricultural data last Friday (February 4) made the market re-evaluate the Fed’s terminal interest rate level, and the USD/TWD rebounded sharply this week to recover the 30 mark, driven by the rebound in the US dollar.
There is no doubt that US inflation developments will be at the forefront of trading in 2023, and with US interest rates approaching the 5% level, the chances of the Fed tightening more than expected are increasing.
At the same time, Taiwan’s central bank issued a warning, saying that prematurely easing monetary policy will only delay inflation for longer and make it easier to fall into the trap of stagnant inflation. As for how high the interest rate should be raised, it is enough to control inflation expectations and inflation. Chen Nanguang, vice president of the central bank, said that in principle, the terminal interest rate must effectively control inflation, but its level is related to inflation and financial conditions in various countries. There is no conclusion.
In fact, the author is currently in the game period of the market, and at this stage, the statements of central bank officials such as the Federal Reserve have limited impact on the market, and investors are more concerned about the release of inflation-related data.
It should be reminded that next Tuesday (February 14) will usher in the US January CPI data.
Although market uncertainty remains, it is almost certain that if the U.S. maintains its6%The level of inflation will driveThe federal funds rate is above 5%.
On the other hand, Taiwan’s GDP unexpectedly recorded negative growth in the fourth quarter of 2022, the largest decline since 2009, which to a certain extent limits the room for the Taiwan Central Bank to raise interest rates. This means that if Taiwan’s central bank stops raising interest rates at this time, the US and Taiwan interest rates will exceed 300 basis points, suggesting that the US dollar/TWD may have room for rebound and correction in the short term.
Taiwan-US interest rate comparison:
Source: macromicro.me.
The market outlook focuses on four changes in the Fed’s tightening
Although the Fed is still trying to strike a balance between the economy and inflation, given that the central bank’s main focus is to control inflation, I expect the Fed to keep interest rates high for a longer period of time.
For emerging market economies, it is necessary to be alert to the impact of macroeconomic policies in developed economies. Specifically, it can be divided into four situations:
Moderate and orderly tightening by the Federal Reserve;
The Federal Reserve will raise interest rates more aggressively and shrink its balance sheet;
The Fed tightened more than expected, exacerbating financial risks;
The U.S. economy is in recession, and the Federal Reserve shifts from raising interest rates to cutting interest rates.
As mentioned above, investors need to be wary of the possibility that the global economic outlook will turn pessimistic, and the outflow of funds from Taiwan stocks will drag down the decline of the New Taiwan dollar. We believe that there is room for further rebound in the USD/TWD, and we can focus on the 30.5 level above.
USD/TWD trend: 30 mark lost and regained, or attack 30.5-31.0 area
USD/TWD daily chart:
The USD/NTD 30 mark has been regained, suggesting that the rebound correction is expected to continue further, and the market outlook may test the resistance in the 30.5-31.0 area.
However, given that USD/TWD has broken through the long-term uptrend line, a reversal of the medium-term trend would mean a break above the 31.0 level. Therefore, the author expects that the USD/TWD will continue to test the support of the 30 mark again after the rebound and correction.(Billywritten)
Follow me on Twitter here: @BillyDF5
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