Strengthening National Currency: Potential Struggles for Export Sector
Written by an enthusiastic wordsmith, partnering with CNA
The Taiwanese tech industry is bracing itself for turbulent times, as the New Taiwan dollar continues its relentless ascent against the US dollar. This trend is primarily driven by expectations that Washington may push Taiwan to boost its currency, tightening the competitive screws on US goods [Enrichment Data].
Export-oriented giants like ASE Technology Holding Co, the world's largest integrated circuit packaging and testing services provider, are staring down the barrel of substantial foreign exchange losses. Each percentage point rise in the NT dollar takes a hefty 1.5% bite out of their gross margins [Base Article].
The NT dollar surged to an impressive NT$29.59 per US dollar before dialing back to NT$30.145 yesterday, marking a 2.96% gain in Taipei trading. This dramatic rise is the steepest daily increase since 2002 [Base Article].
Dealers attribute the strong NT dollar to mounting speculation that the US would press Taiwan to strengthen its currency. Negotiations between the two nations, over a potential 32% reciprocal tariff threatened by US President Donald Trump, loom on the horizon [Base Article].
The heavyweight semiconductor industry has voiced its concerns. TSMC, the mighty titan of the integrated circuit market, expects its operating margin to dip by 0.4% for every 1% climb in the NT dollar [Base Article].
Not to be outdone, United Microelectronics Corp foresees a similar drop in their gross margin. Shares in ASE, TSMC, and UMC have tumbled by 3.6%, 1.26%, and 1.31% respectively, in response to the currency volatility [Base Article].
The sudden strength of the NT dollar comes at a challenging time for the local semiconductor and broader electronics sectors. Hedging against foreign exchange risks becomes increasingly difficult under such swift and unpredictable market movements. Taiwanese tech exporters may find their bargaining power tested, as clients demand price adjustments in line with the rising value of the NT dollar [Base Article].
Auto part manufacturers, who operate on relatively slim profit margins, could find their profitability exposed to undue strain. Tong Yang Group, an aftermarket replacement auto part supplier, is equipped to handle short-term volatility, but a prolonged strong NT dollar might deliver a heavy blow to its bottom line [Base Article].
The rapid appreciation of the NT dollar could also dent the industries' profitability in the second quarter, according to insiders. The auto parts sector isn't the only one affected by this trend—even the financial sector, particularly life insurance companies, is feeling the heat. The weakening US dollar has sparked fears that the value of their overseas assets may shrink [Base Article].
Fubon Financial Holding Co, Cathay Financial Holding Co, and CTBC Financial Holding Co have all taken a beating, shedding 5.88%, 6.81%, and 2.36% of their market value respectively [Base Article].
Despite the challenges, Taiwan's economy remains robust, exhibiting an impressive resilience in its high-tech manufacturing sector. Adjusting economic policy to maintain competitiveness will be essential to ensure that the NT dollar's appreciation doesn't derail the island's economic growth [Enrichment Data].
- The strength of the New Taiwan dollar could adversely affect businesses within the microelectronics industry, particularly companies like TSMC and United Microelectronics Corp, as they might experience a dip in their operating margins and gross margins.
- In the aftermarket, replacement auto part suppliers such as Tong Yang Group, may struggle with undue strain on their profitability if the strong NT dollar persists for an extended period.
- The financial sector, specifically life insurance companies, could also be affected as the weakening US dollar might cause the value of their overseas assets to shrink.
- To ensure the New Taiwan dollar's appreciation does not derail the island's economic growth, it will be crucial for Taiwan to adjust its economic policy to maintain competitiveness within the finance, business, and industry sectors.
