Depreciates Over NT$1 in Fourth Quarter, Nearing NT$33 Level
The Taiwan dollar has continued to weaken since the fourth quarter, just one step away from the NT$33 mark. According to central bank data, the NT dollar exchange rate against the U.S. dollar moved from NT$31.852 at the end of September to an intraday level of NT$32.985 on November 5, closing at NT$32.876, down 5.5 cents on the day and a fresh closing low for the current wave. So far in the fourth quarter, the closing rate has cumulatively depreciated NT$1.024, or about 3.12%. Fubon Financial Holding chief economist Lo Wei said the Taiwan dollar will remain weak in the short term, with the soft pattern likely extending into the first quarter of 2027.
Foreign Capital Outflows and Strong Dollar Squeeze Taiwan Dollar
Lo Wei said international funds have recently turned cautious. In addition to the prolonged geopolitical conflict in the Middle East, the market has also begun to re-examine the investment returns on the AI industry's huge capital expenditures, leading foreign investors to continue trimming Taiwan stocks and remitting funds abroad. With the U.S. dollar index holding in a relatively strong range around 100, emerging market currencies are generally under pressure, and the Taiwan dollar cannot escape alone. Until geopolitical risks and doubts over AI investment ease明显, there is limited chance of large-scale buying of Taiwan stocks by foreign investors in the short term. However, some exporters have taken advantage of the weaker Taiwan dollar to repatriate overseas funds to Taiwan, helping slow the pace of decline. He stressed that the recent depreciation mainly reflects market fund flows, not an official attempt to stimulate exports through a weak exchange rate.
U.S. Debt Exceeds 40 Trillion, Midterm Elections Add Uncertainty
Looking ahead to next year, Lo Wei reminded that after the U.S. midterm elections changed the political landscape, with Democrats winning majorities in both the House and Senate, fiscal negotiations between the Trump administration and Congress may become more difficult. Among them, negotiations over the government spending bill in the first quarter of 2027 and the debt-ceiling standoff in the second quarter will become the two major political and economic risks in the first half of the year in the United States. U.S. federal debt has exceeded 40 trillion dollars, and the huge fiscal burden and bond issuance needs keep the long-term government bond market under continued pressure. Although the U.S. 10-year Treasury yield fell from 5.31% in early October to 4.89% on November 4, partly reflecting market expectations that Democratic victories could restrain the Trump administration's expansionary fiscal policy and reduce the risk of further widening deficits, the yield remains明显 above 3.96% at the end of February this year, showing long-term financing costs remain relatively high. He noted that if the Trump administration again uses a government shutdown as a bargaining chip, it could again hit market confidence and increase the difficulty for the Federal Reserve in assessing future monetary policy. The Fed's policy rate currently remains at 3.75% to 4.00%.
Rising Imported Inflation, Central Bank May Reassess Policy
On the Taiwan central bank's next move, Lo Wei said continued depreciation of the Taiwan dollar is not entirely favorable for exports. Taiwan relies heavily on imported energy, raw materials and equipment. If international oil prices stay high, combined with currency depreciation, it will push up corporate costs and domestic prices, creating broader imported inflation pressure. On the other hand, changes in the Taiwan-U.S. interest rate gap and fund flows will also increase the difficulty for the central bank in maintaining exchange rate and price stability. He expects that from the fourth quarter of this year into early next year, Taiwan's central bank may reconsider its existing monetary policy direction due to Taiwan dollar depreciation, inflation and interest-rate-gap pressures, and a moderate adjustment cannot be ruled out. However, this does not mean the central bank will necessarily raise rates immediately. Actual decisions will still need to comprehensively consider prices, economic conditions and international financial developments, and policy adjustments may also be gradual.