Brad Setser on the Big Surge in the Taiwanese Dollar

Bullish:

• $TWD - Taiwan's large current account surplus suggests potential for TWD appreciation

  • “Taiwan runs one of the biggest current account surpluses in the world. It's fluctuated between 10% of Taiwan's GDP and 15% of Taiwan's GDP.”

    Brad·5:31
• $ASIACURR - Asian currencies may appreciate following recent weakness and China's policy decisions

  • “Asian currencies were very weak. The dollar was very strong. And then China made a policy choice not to respond to the draconian tariffs”

    Brad·11:29
• $USSHORT - Increased demand for short-term US Treasuries due to central bank intervention in currency markets

  • “Countries that don't want their currency to appreciate or don't want their currency to appreciate too quickly intervene in the market. They buy dollars, and central banks tend to be the player that is least inclined to buy corporate debt to take credit risk and most inclined just to plow that money into the treasury market and typically into the shorter end of the curve.”

    Brad·24:07

Bearish:

• $TWINSURE - Taiwanese insurers exposed to FX risk due to reduced currency hedges

  • “Classic kind of mistake.”

    Brad·10:47
• $USCORP - Potential reduced demand for long-dated US corporate bonds from Taiwanese life insurers

  • “Right now, where the lifers are particularly important is for long dated US corporate bonds, on a year plus, that kinda stay investment grade corporates.”

    Brad·24:07