U.S. dollar hits 8-month high on Taipei forex on strong showing

Taipei, July 8 (CNA) The U.S. dollar continued its momentum from a week earlier, making a strong showing this week to hit a new high in eight months against the Taiwan dollar at a time of renewed fears over a possible resumption of its rate hike cycle by the Federal Reserve, dealers said.

On Friday, the U.S. dollar soared NT$0.110 to close at NT$31.330 against the Taiwan dollar, the highest level since Nov. 11, 2022, when the greenback ended at NT$31.410, marking the third consecutive trading session for the American unit to move higher on the local currency market.

For the week, the U.S. dollar rose NT$0.195 or 0.62 percent against the Taiwan dollar, the fifth straight week for the greenback to move higher.

Dealers said the sell-off in the Taiwan dollar on Friday came after the U.S. dollar index, which tracks the value of the currencies of Washington’s six major trading partners, hovered at a relatively high level of about 103 since many investors were betting that the Fed will resume its rate hike cycle in the next policymaking meeting scheduled for July 25-26 after a pause in June.

Such expectations have been raised after payroll processing firm ADP reported on Thursday that the private sector created 497,000 jobs in June, well above an early market estimate of 220,000, indicating the U.S. job market remained strong despite the Fed’s recent aggressive rate hikes.

Worries over a hawkish Fed prompted investors to cut their holdings on the local stock market on Friday, when the Taiex, the weighted index on the Taiwan Stock Exchange, fell 97.96 points, or 0.58 percent, at 16,664.21 as foreign institutional investors stood on the sell side, taking cues from volatility on the U.S. markets overnight.

Before Friday’s sell-off, the Taiex plunged 1.73 percent on Thursday also in the wake of massive foreign institutional selling.

This week, foreign institutional investors sold a net NT$69.54 billion (US$2.22 billion) worth of shares on the main board, including a net sell of NT$38.75 billion on Thursday alone, according to the TWSE.

Dealers said the large net sell by foreign institutional investors added downward pressure on the Taiwan dollar and gave an additional boost to the U.S. dollar for the week.

Expectations of a higher U.S. dollar led many foreign institutional to move their funds out of the local market to greenback denominated assets, prompting the local central bank to enter the market to buy the Taiwan dollar to prevent further losses suffered by the local currency during the week, dealers said.

In addition, a move by Taiwanese exporters to sell U.S. dollars they owned to meet fund demand also helped the Taiwan dollar offset some of the headwinds resulting from a stronger U.S. dollar index, dealers added.

Dealers said how the Taiwan dollar will perform will largely depend on how foreign institutional investors will move their funds, but for the moment, further fund exits by foreign investors are possible as the market has widely anticipated the Fed will raise its key interest rates later this month following the release of June’s non-farm payroll data.

On Friday, Washington reported the June non-farm payroll data which showed the U.S. created 209,000 jobs in the month, lower than an earlier market estimate of 240,000, but closely watched wages numbers were stronger than expected with average hourly earnings up 0.4 percent for the month and 4.4 percent from a year ago.

The U.S. non-farm payroll report pushed down the Dow Jones Industrial Average by 0.55 percent Friday, which could pave the way for more foreign institutional sell-off on the Taiex next week and pressure on the Taiwan dollar, dealers said.

If foreign investors keep moving their funds out of Taiwan, dealers said, the U.S. dollar could rise further to hit NT$31.500 soon.