Taiwan dollar leads Asia FX losses on equity outflows, bond buying

The Taiwan dollar led Asian currency declines on Friday, logging a seventh straight session of losses and slipping to a more than three-month low, as foreign investors sold local stocks and the island’s residents bought overseas bonds.

The Taiwan dollar weakened 0.6% to 30.682 per U.S. dollar and is on track for its worst weekly percentage drop since late-September 2015. It is set to lose over 2% in value in the last seven sessions.

Stocks in Taipei fell 0.7% on the day and are on track to lose over 2% this week.

The Indonesian rupiah fell 0.4%, wilting for a fourth straight day, and is on track for its worst week since early-April.

The Indian rupee and the Malaysian ringgit gave up 0.2%.

Asian equities largely traded higher, with those in Kuala Lumpur up 0.3% at a six-month high and shares in Singapore adding 0.5%.

Stocks in Seoul advanced 0.9% and those in Bangkok added 0.8%. A gauge of emerging Asian equities, however, lost 0.8% this week, snapping from two straight weeks of gain.

Persistent uncertainties over Trump administration policies towards foreign chipmakers and a U.S. tech market sell-off have rattled investors this week.

Foreign investors sold T$69 billion ($2.26 billion) worth of shares on Taiwan’s stock exchange on August 20 after a tech selloff in the U.S., the Taiwan Stock Exchange website showed.

“Moreover, resident’s outbound investments through bond ETFs, which had slowed down in Q2 after the liberation day tariffs, have recently increased again. These investments are driving USD buying flows, leading to a higher USDTWD exchange rate,” according to Chandresh Jain, EM Asia Rates and FX Strategist, BNP Paribas.

Among other currencies, the South Korean won was the only outlier, advancing 0.4%. The local unit, however, has lost 0.3% so far this week.

Investors were spooked by a report released this week that 95% of AI pilots in businesses have fallen short, largely due to a “learning gap” among users, said Wei Liang Chang, FX and credit strategist at DBS.

“The chip-heavy KOSPI is down about 2% this week, signaling foreign outflows that are weighing on the won, though the US dollar/won pair could ease if a major U.S. AI accelerator maker posts strong results next week, bolstering sentiment toward semiconductor stocks.”

The U.S. dollar index was up 0.2%, and is on track to add nearly 1% this week, also weighed on most regional currencies, while equities largely traded higher.

Investors are also bracing for a closely watched speech by Federal Reserve Chair Jerome Powell that could set the near-term course for interest rates.

A weak July jobs report and deep downward revisions to May-June hiring briefly had traders betting on a jumbo September cut. Caution from Fed officials and inflationary data have since pared those bets, with CME FedWatch now showing a 75% chance of a 25-bp cut, down from 92% a week ago.

Meanwhile, Jain said Bank Indonesia’s rate cut this week has narrowed the policy rate gap with the Fed to its lowest of the easing cycle, a squeeze that is adding pressure on the rupiah.

“This compression is exerting pressure on the Indonesian rupiah.”

HIGHLIGHTS:

** Issues likely to be discussed at the US-South Korea summit

** Trump administration is not eyeing equity in TSMC, Micron – Reuters