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TWD Caught Between Carry Headwinds & Positive Equity Tone, CPI Later

TWD

USD/TWD sits just off session highs, last near 31.50. Late Nov lows in the pair coincided with a test of downside support at the 200-day MA (currently near 31.30), which held. Highs from the second half of Nov came in around 31.65, which is also close to the current 20-day EMA.

  • Local equities are only modestly down from recent highs above 17500. We did see chunky equity outflows yesterday (-$422.2mn), after what had been a strong inflow period during much of Nov.
  • We have only just returned to positive YTD inflows, so there may be upside momentum if tech related sentiment improves further. In turn this may cap USD/TWD upside.
  • Working the other way is TWD's unappealing carry characteristics, TWD forward points (3 month) remain comfortably in negative territory, albeit up from recent lows). Note the US-TW2yr swap rate differential is back to +366bps, around multi month highs.
  • The CBC noted that it intervened in FX markets in Nov, as FX reserves climbed to $567.52bn (prior was $561.08bn).
  • Later on, Taiwan Nov CPI and PPI print. PPI is expected at 2.80% y/y, versus 3.05% prior.
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