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USD/TWD Offered Above 30.00

TWD

1 month USD/TWD remained very much within recent ranges post the Asia close. We saw a brief blip above 30.00 but we ended the NY session at 29.94. Note spot closed at 29.999 onshore yesterday. While Pelosi has now left Taiwan the focus is likely to be on China military exercises held over the next few days around the island and any further economic sanctions announced.

  • The military exercises risk incursions into Taiwan's territorial waters and airspace. As we noted yesterday this creates the risk of accidental military clashes. The other focus point will be how the exercises disrupt sea and air trade routes, although if the exercises conclude on August 7 the impact is expected to be fairly minimal.
  • Sanctions announced by China to date around curbing Taiwan agricultural and sand exports to China aren't expected to have a large economic impact. Most of Taiwan's trade surplus with China is in the manufactured goods space, so any trade sanctions in this area would represent an escalation.
  • Despite the modest gain in Taiwan stocks yesterday (+0.20%), offshore investors sold a further $242.5mn in local shares, bringing week to date net outflows to just over $1.2bn. There were strong gains in tech shares overnight, which may help local sentiment today, although clearly the focus will remain on the risks outlined above.
  • Comments yesterday from the CBC Governor that the authorities were not concerned by outflows and that the central bank has ample FX reserves were also noteworthy.
  • The 1 month implied vol for USD/TWD is off recent highs, down to 6.21%, from +7%. It's a similar pattern in the risk reversal space.

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