Taiwan’s dollar pulled back Tuesday after a historic surge that saw the currency appreciate approximately 9% against the greenback over two trading days, marking its sharpest rally since 1988 and raising alarms across the export-dependent island’s tech sector.
The local currency weakened over 3% against the U.S. dollar on Tuesday, taking a breather after hitting three-year highs. The dramatic moves have sent ripples through Taiwan’s crucial semiconductor industry, with Taiwan Semiconductor Manufacturing Co. shares falling for a second consecutive day.
Analysts estimate that for every percentage point the Taiwan dollar appreciates, TSMC’s operating margin narrows by roughly 0.4 percentage points, a concerning calculation for an industry that generates most of its revenue in U.S. dollars while maintaining operations primarily in Taiwan.
The Taiwan Association of Machinery Industry has warned that the currency’s rapid appreciation is eroding export competitiveness, with secretary-general Hsu Wen-tung noting that exporters are finding it increasingly difficult to secure overseas orders and maintain profit margins.
Market speculation links the currency’s movement to Taiwan’s unique position in the global economy as the dominant manufacturer of high-end computer chips and supplier to both the U.S. and China. Traders pointed to a flurry of selling pressure in the U.S. dollar as investors, exporters, and insurers sought to offload the greenback.
Taiwan’s central bank has denied receiving any request from the U.S. Treasury Department to strengthen the local currency, attempting to quell speculation that currency appreciation might be part of trade negotiations.
Some market analysts have drawn parallels to the 1985 Plaza Accord, suggesting fears of a “Plaza Accord 2.0” scenario where Asian currencies with large trade surpluses face pressure to appreciate against the dollar.
Despite the currency’s pullback Tuesday, analysts suggest the Taiwan dollar’s strength could persist if trade tensions ease and the broader shift away from U.S. dollar-denominated assets continues.
