Closes Below 28.00/USD For First Time Since 1997

USD/TWD closed below 28.00 on Monday for the first time since 1997, finishing the session at 27.95. The Taiwan Central Bank (CBC) had resolutely defended the 28.00 handle, but the US Tsy has warned the bank to refrain from intervention, but stopped short of labelling Taiwan a currency manipulator. In its report, the US Tsy noted that TWD could be undervalued as much as 21%, while the Big Mac Index suggests the currency could be almost 15% undervalued, indicating that now the 28.00 handle is broken further downside in USD/TWD could be on the cards. 1-month NDF's have risen slightly, but still indicate the pair will hold most of the losses. Despite the gains in TWD yesterday, there was chatter that CBC directed state banks to buy USD to limit downside. Markets look ahead to GDP data on Friday.