Taiwan Dollar Nears 33 as Fubon Economist Sees Persistent Dollar Strength

Table of Contents

• You might want to know
• Main Topic
• Key Insights Table
• Afterwards...

You might want to know

• Why have the Taiwan dollar, yen, and South Korean won responded differently to foreign investment flows?
• What conditions could allow the Taiwan dollar to recover from its recent weakness?

Main Topic

The Taiwan dollar has weakened recently and is edging toward the 33 level. Whether it can regain ground will depend on international capital flows and geopolitical developments, as well as investor expectations about artificial intelligence investment. Wei Lo (羅瑋), chief economist at Fubon Financial Holding (富邦金控, 2881-TW), expects the U.S. dollar to remain relatively strong at least through mid-2027. He forecasts the U.S. Dollar Index in a range of 100 to 104. In contrast, near-term conditions for the Taiwan dollar remain challenging: sustained foreign selling, geopolitical risks, and concerns about the durability of AI capital expenditure are all weighing on sentiment.

Lo’s outlook emphasizes that foreign-exchange movements cannot be explained by trade performance alone. Taiwan’s information and communications technology industries have benefited from the AI boom, and exports have remained strong in recent years. Yet the exchange rate has also been shaped by shifts in global investment, hedging activity, and political pressures. Until key uncertainties ease and international funds return, the Taiwan dollar may struggle to stage a significant rebound.

A comparison with Japan and South Korea illustrates how currency behavior can differ even when foreign investors are active in regional equity markets. Historically, foreign investors buying Taiwanese shares have often helped the Taiwan dollar rise, while withdrawals from the stock market have tended to coincide with depreciation. The relationship between foreign equity flows and currencies in Japan and South Korea has, at times, followed a different pattern, partly because investors hedge their equity exposure through forward foreign-exchange transactions.

When foreign investors increase their holdings of Japanese or South Korean stocks, they may also sell the yen or won forward as a hedge. If equity markets fall or investors pull money out, they can reverse that position by buying yen or won to close the forward contracts. In addition, when the market value of their shareholdings declines, the amount of currency hedging they need may also decrease. This can prompt investors to buy back local currencies. Consequently, the yen and won may appreciate even during periods when foreign investors are withdrawing from local stock markets.

Taiwan’s foreign investment flows remain more closely linked to the Taiwan dollar’s direction. Lo says foreign investors are continuing to sell Taiwanese equities, contributing to the currency’s weakness. A clear short-term reversal is therefore difficult to anticipate. Taiwan’s central bank, through its Foreign Exchange Department, is also closely monitoring the movement of foreign hot money. These conditions make capital flows an important factor to watch alongside exports and domestic economic activity.

Among major currencies, Lo expects the U.S. dollar to retain relative strength at least through the middle of next year, with the U.S. Dollar Index fluctuating around 100 to 104. The euro, meanwhile, faces the possibility of further weakness because of political uncertainty in Europe. These forecasts reflect a market environment in which policy expectations and political developments can influence currencies as much as economic fundamentals.

The yen’s outlook depends in part on the difference between U.S. and Japanese interest rates. If the U.S. Federal Reserve (Fed) leaves rates unchanged while the Bank of Japan continues normalizing monetary policy, changes in the U.S.-Japan interest-rate differential could support yen appreciation. Lo says the yen may break out of its current trading range next year. The prospect of a stronger move would increase if the Bank of Japan signals a policy shift in March and follows with a rate hike in April. These are conditional expectations rather than guarantees, since the currency’s direction will also depend on actual policy decisions and market responses.

The renminbi is managed within policy boundaries, according to Lo. When the currency previously weakened to around 7.35, the People’s Bank of China used policy tools to support stability. When the renminbi strengthened to around 6.65, authorities used measures such as raising the foreign-exchange reserve requirement ratio to manage the pace of appreciation. The renminbi has now returned to around 6.67. Lo expects it to be around 6.68 by the end of the year, while next year it could again test 6.65 and potentially 6.6. The outlook therefore combines the possibility of appreciation with the expectation that policymakers will continue to manage the exchange rate.

The Taiwan dollar’s recent history also demonstrates how external pressures can temporarily outweigh strong export performance. In May 2025, the currency appreciated rapidly amid pressure from the United States. It briefly reached around 28.8 in July, then gradually weakened as that pressure eased. For Lo, this episode shows why Taiwan’s robust technology exports do not, on their own, determine the exchange rate. International portfolio flows and policy-related influences can materially affect the currency’s short-term path.

Three principal factors are keeping the near-term outlook for the Taiwan dollar weak. First, foreign investors are continuing to sell Taiwanese equities. Second, geopolitical tensions in the Middle East and the Russia-Ukraine war remain unresolved. Third, investors are questioning whether AI-related capital expenditure can continue at its recent pace. Together, these pressures could limit demand for the Taiwan dollar and discourage international funds from returning to the market.

A more sustained recovery would require a change in those conditions. A reduction in geopolitical risks could improve global risk sentiment, while greater confidence in the durability of AI investment could help stabilize expectations about technology-related trade and corporate spending. If these uncertainties gradually recede and international capital flows back into Taiwan, the Taiwan dollar could have a better opportunity to appreciate more noticeably. Until then, Lo considers short-term weakness difficult to avoid.

Currency depreciation also matters for domestic policy. A weaker Taiwan dollar can add to imported inflation pressures, while movements in the interest-rate differential between Taiwan and the United States may affect the central bank’s calculations. Lo says these factors could prompt Taiwan’s central bank to reassess its monetary-policy direction. Some degree of policy adjustment is possible from the fourth quarter through early next year, although he expects any changes to be gradual and measured rather than abrupt.

The central message is that the Taiwan dollar’s near-term direction depends not only on export strength but also on foreign capital flows, geopolitical risks, and confidence in continuing AI investment. The currency’s prospects could improve if those pressures ease, but the timing and extent of any recovery remain uncertain. Meanwhile, the dollar, yen, euro, and renminbi each face different combinations of policy and political influences.

Key Insights Table

Afterwards...

The next phase for the Taiwan dollar will depend on whether foreign investment flows stabilize and whether geopolitical and AI-investment concerns begin to fade. Strong exports remain an important part of Taiwan’s economic picture, but they do not guarantee currency appreciation when global capital is moving elsewhere. Investors and policymakers will also be watching central-bank decisions in the United States, Japan, and China, since differences in monetary policy can alter currency incentives across the region.

For now, the outlook is conditional rather than definitive: the U.S. dollar may remain relatively firm, while the Taiwan dollar faces near-term headwinds. A clearer recovery would require improved confidence and renewed international demand. Any policy response in Taiwan is expected to be gradual, with authorities balancing exchange-rate pressures against imported inflation and broader economic conditions.