## The Truth Behind the "Polarization" of Asian Currencies: Yen Rises on Rate Hike Hype, Why Is the TWD Falling Alone?

This week, the Asian currency markets played out very different stories. The Bank of Japan Governor Kazuo Ueda signaled a potential rate hike by the end of the year, boosting the yen to a new high of 155.39 against the US dollar; the offshore RMB (CNH) also responded, briefly breaking through the 7.07 level to reach a new high for the wave. However, the New Taiwan dollar and the Korean won, both in Asia, appeared dull and weak, especially as the TWD/USD exchange rate opened slightly higher at 31.4, then depreciated steadily, touching a low of 31.46, and closing at 31.422, down 1.4 cents. In comparison, the TWD/KRW performance was similarly weak. Behind this "strong yen, weak TWD and KRW" pattern, what hidden capital secrets are at play?

## Why Is the RMB So Bearish? ANZ Predicts It Will Rise to 6.95 by 2026

Amidst the short-term volatility of Asian currencies, ANZ Bank released a striking research report with a bold view: **The RMB against the US dollar is expected to rise to 6.95 by the end of next year**, emphasizing that the appreciation potential will not significantly weaken China's export competitiveness.

The report's logical chain is clear and compelling:

First, **the interest rate differential pattern is changing**. It is expected that China's central bank will cut interest rates less than the Federal Reserve next year, easing the US-China interest rate spread pressure, breaking the long-standing dollar dominance fundamentals.

Second, **economic fundamentals are stabilizing**. The report believes China's economic downside risks are manageable, and with US-China trade tensions expected to gradually ease, this provides strong support for the RMB exchange rate.

Third, **undervalued currency has room for a rebound**. The report points out that the RMB's real effective exchange rate is still undervalued; moderate appreciation can not only boost residents' purchasing power and stimulate consumption but also have limited impact on exports.

Finally, **a surge in foreign exchange conversions may occur**. If the US dollar continues to weaken, Chinese exporters will be motivated to convert foreign exchange income into RMB, creating additional exchange rate support.

ANZ further suggests that investors can adopt a strategic position by **selling 6-month USD/HKD forward contracts**, despite the carry cost, as they are optimistic about the RMB's strong appreciation potential over the next six months.

## The TWD's Triple Dilemma: Foreign Capital Outflows, Data Uncertainty, and Exporters Holding Steady

Compared to the shining RMB, the New Taiwan dollar is caught in a "triple dilemma."

**The first layer stems from foreign capital adjustments**. Since November, concerns about AI stock bubbles have increased, prompting foreign investors to adjust their holdings in Taiwan stocks, with net sales exceeding NT$400 billion in the month. This capital outflow directly pressured the TWD, which depreciated 6.59 cents last month, retreating from the 30s to around 31.4. Data from banking and forex agencies show that Taipei's forex trading volume was only US$507 million, indicating a significant liquidity contraction.

**The second layer comes from the transitional support of the US dollar**. Although markets have already priced in the December rate cut by the Fed, this week’s data—including non-farm payrolls, inflation figures, and Fed Chair Jerome Powell’s public comments before the silence period—still affected global capital sentiment. Until the data clarifies, the dollar maintains some support, which suppresses the overall performance of Asian currencies.

**The third layer involves a lack of short-term buying**. As the month begins, exporters are not rushing to convert their foreign exchange, making the TWD's short-term trend almost entirely dependent on foreign capital flows. Without substantial buying support, the exchange rate is prone to weakening as foreign investors withdraw.

In comparison, the TWD/KRW exchange rate is similarly bleak, both facing the dual pressure of a strong dollar and foreign capital withdrawal.

## Three Key Observations for the Future: 31.5 TWD as a Short-term Defense Line

Looking ahead, market participants generally focus on these three core variables.

**Foreign capital flows will determine the direction of the TWD**. If selling pressure in Taiwan stocks gradually eases and foreign capital turns to inflows, the TWD could restart its appreciation trend. This is the most direct driver to reverse the current situation.

**The leading role of Asian currencies may influence sentiment**. If the yen continues to strengthen due to rate hike expectations, it could boost some Asian currencies’ rallying sentiment, but the TWD and KRW still need their own fundamentals to improve before effectively following suit.

**31.5 TWD will become a short-term psychological barrier**. Forex banks generally expect the TWD to fluctuate between 31.3 and 31.5 in the short term, with 31.5 being a key support and resistance level. A break below this could trigger further depreciation pressure.

## How Should Capital Be Deployed? Strategy Frameworks for Three Types of Investors

In the face of a complex forex landscape, different investors should adopt tailored strategies.

**USD asset holders** should closely monitor Fed speeches and economic data, especially employment and inflation indicators. If rate cut expectations reignite due to data shocks, the dollar may weaken again, making timely adjustments a more rational choice.

**Institutions sensitive to emerging market trends** can focus on RMB opportunities. If they agree with ANZ’s analysis, they can gradually build RMB positions through bank foreign currency accounts or related financial products, capturing the medium- to long-term appreciation potential. This strategy is especially suitable for investors with a medium-term RMB appreciation outlook.

**Exporters and everyday investors** should leverage the TWD/USD range volatility. When the exchange rate approaches 31.5, converting currency for future operations or medium-term investments can lock in relatively low levels and avoid further depreciation risks.

## Conclusion: The Forex Market Always Tests Expectation Management

The essence of the forex market is "trading based on expectations." A single rate hike hint can send the yen soaring, capital outflows can weaken the TWD, and forward-looking institutions have already booked a RMB appreciation script for next year. In an era of increasing currency polarization, investors and businesses must keep a close eye on central bank policies, capital flow changes, and subtle economic data movements to stay steady amid the global forex waves.