New Taiwan Dollar breaks through the 31.4 mark! The Fed's dovish shift and hot money inflow double drivers revealed

Exchange Rate Plummets, US Dollar Fails to Hold Its Ground

The US Dollar Index quickly retreated from high levels to around 100.16, and this change was no coincidence. Recent signals of moderation from Federal Reserve officials have rapidly increased market bets on a rate cut in December, causing the attractiveness of the US dollar to decline. This is the core reason behind the recent cracks in the dominance of the dollar and also creates a rare breathing space for emerging market currencies.

Asian currencies have benefited across the board, with major Asian currencies such as the Japanese Yen, Korean Won, and New Taiwan Dollar all rising. Among them, the New Taiwan Dollar performed particularly well, briefly reaching a high of 31.405 during the early trading session, demonstrating clear upward momentum.

Taiwan Stock Market Rally and Forex Market Linkage, Foreign Capital Flows as Key

Behind the rise of the New Taiwan Dollar is the prosperity of the Taiwan stock market. Leading electronic and large-cap stocks surged, with the Taiwan stock index closing significantly higher, attracting accelerated foreign capital inflows. Simultaneously, the end-of-month demand from exporters for currency hedging contributed to this rare synergy of stock and forex markets. The New Taiwan Dollar opened at 31.42 and immediately climbed to 31.405, appreciating by 4.2 cents, fully reflecting market optimism.

It is also noteworthy that the exchange rate of 1 British Pound against the New Taiwan Dollar has adjusted in tandem with global forex trends, reflecting the overall interconnectedness of Asian currencies.

Limited Rebound of Asian Currencies, US Dollar Fundamentals Still Unchanged

Although Asian currencies like the New Taiwan Dollar rebounded, analysts point out that the sustainability of this rally remains uncertain. The US Dollar Index still hovers above the round number of 100, indicating that the dollar’s overall pattern has not fundamentally reversed. As a result, upside potential for Asian currencies is capped, with the New Taiwan Dollar currently fluctuating around 31.415. Whether it can break below the support level of 31.3 depends on Fed policy directions and the magnitude of foreign capital net inflows.

Two Key Insights from Traders

Market participants generally believe that the recent strength of the New Taiwan Dollar is driven by two main forces: first, the Fed’s softened stance which puts pressure on the dollar; second, the rally in Taiwan stocks attracting overseas funds. If these two drivers can be sustained, it is not hard to imagine the New Taiwan Dollar challenging the 31.3 level.

However, risks should not be overlooked. The international forex market remains volatile, with unexpected US economic data potentially reversing market expectations, and signs of economic weakness in China could also weigh on the entire Asian forex market.

Practical Trading Recommendations

Exporters should consider taking profits around 31.4 and lock in gains by selling on rallies. Importers need not rush to enter the market; waiting for a better retracement level for positioning often proves to be the greatest advantage in trading.

Whether the current surge of the New Taiwan Dollar can continue depends on whether the US dollar’s strength and foreign capital attitudes can sustain their current directions. If both lose support simultaneously, the rebound space will be limited, and investors should remain vigilant.