Taiwan Dollar Bulls Look Past AI-Led Selloff to Year-End Rally

Underscoring those projections are Taiwan’s robust economic growth and current account surplus. Even though doubts over lofty AI stock valuations continue to drive outflows and weigh on the exchange rate in the short term, analysts expect fundamental trade support to prevail over the coming months. “Record trade surpluses and AI-related exports continue to generate underlying Taiwan dollar support,” said Lin Li, head of global markets research for Asia at MUFG Bank Ltd.

“But foreign portfolio outflows, outward investment and the large US dollar-Taiwan dollar yield differential is creating offsetting US dollar demand at the moment.” Li sees the Taiwan dollar appreciating to 31.8 per greenback by year-end before gaining further to 30.9 by the end of June 2027. Taiwan’s current account surplus reached a record high of nearly $70 billion in late 2025, buoyed by unprecedented global demand for advanced chips, before narrowing moderately in recent months.

At the same time, officials raised the island’s full-year economic growth forecast to more than 10%, putting the technology hub on track for its first double-digit expansion since 2010. Still, those underlying strengths are clashing with a wave of foreign capital flight. Foreign investors sold NT$302.6 billion ($9.3 billion) of Taiwan equities on Thursday, the largest daily outflow on record, pushing the Taiwan dollar to within striking distance of its year-to-date low of around 32.50 per US dollar.

While analysts do not view that level as a rigid line in the sand for policymakers, they are watching it closely as a comfortable zone for the monetary authority known as the Central Bank of the Republic of China or CBC. “The CBC will attempt to keep the Taiwan dollar relatively rangebound,” said Lynn Song, chief economist for Greater China at ING Bank. “I don’t think it is a firm line in the sand to defend, but it does seem that 31.5-32.5 range has been comfortable for them so far this year.”

For Jiuk Choi, Asia Pacific macro strategist at State Street Bank & Trust Co., the CBC is more likely to focus on easing currency volatility than target a certain level. “That said, we think the 32.4-32.5 range is an important level for US dollar-Taiwan dollar, as it marks the year-to-date high in 2026,” he said. Beyond concerns over the tech sector, elevated crude prices are adding further pressure on the Taiwan dollar as the island is an energy importer.

Moreover, US 10-year Treasury yields sit roughly 300 basis points above similar-tenor Taiwanese sovereign bonds, offering a compelling yield pickup that continues to fuel broad US dollar strength at the expense of regional currencies. “Near-term headwinds include foreign equity outflows and a strong US dollar amid a hawkish Federal Reserve,” said Trang Le, foreign exchange and rates specialist, LGT Private Banking.

“Even so, strong export momentum, robust external balances and the AI-driven semiconductor cycle leave the medium-term bias tilted toward Taiwan dollar appreciation. We expect volatility rather than sustained weakness to be the dominant theme,” she said. Currency traders are watching earnings reports from major semiconductor manufacturers, which strategists view as the next key catalyst for cross-border equity flows and currency volatility.

Taiwan Semiconductor Manufacturing Co. delivered a better-than-expected revenue outlook on Thursday, yet it failed to fully calm market worries over the broader AI buildout. “Upcoming global tech earnings could increase Taiwan dollar volatility, particularly given the market’s heightened sensitivity to AI-related capex, profitability, and Chinese competition,” said Choi from State Street Bank & Trust.

He sees near-term room for Taiwan dollar weakness on AI trade doubts, but expects a recovery to 31.80 per US dollar by year-end. “We see Taiwan dollar is one of the best hedge currencies to US dollar strength as capital and current account flows remain strong while it has one of the lowest volatilities across emerging markets,” he said. --With assistance from Masaki Kondo, Chien-Hua Wan and Argin Chang. More stories like this are available on bloomberg.com