The new Taiwan dollar has reached a high point in recent years, and the authorities abandoned the 30 mark to free up room for higher appreciation

The Zhitong Finance App notes that the Taiwan dollar is gradually approaching the high set at the beginning of this month — at that time, the currency recorded its biggest one-day increase since the 1980s.

The exchange rate of the Taiwan dollar against the US dollar rose above the 30 yuan mark this week, less than 1% from this month's strongest level. This round of appreciation was relatively moderate, mainly driven by the weakness of the US dollar caused by uncertainty about trade agreements and US fiscal concerns.

This is in stark contrast to the sudden surge at the beginning of this month — exporters scrambled to sell dollars, and some were betting that the authorities would allow the Taiwan dollar to strengthen to facilitate a trade deal with the US. Operations carried out by Taiwan Life Insurance Company, one of Asia's largest holders of US debt, to hedge against position risk may have further amplified the rise.

Although part of the increase declined after Yang Jinlong, head of the monetary policy authority in Taiwan Province of China, called on market commentators to stop speculating on the exchange rate, the exchange rate strengthened again last week as he “strategically allowed” the Taiwan dollar to appreciate. This week's dollar sell-off by foreign investors and local exporters also boosted the Taiwan dollar.

Wee Khoon Chong, a senior Asia Pacific market strategist at the Hong Kong branch of Bank of New York Mellon, said that the NTD met little resistance when breaking through the psychological threshold of 30 yuan. He pointed out, “This is mainly driven by the weakening pressure of the US dollar and rumored increase in hedging demand from local life insurance companies.”

Thanks to this month's gains, the NTD has accumulated a cumulative appreciation of nearly 10% during the year, leading Asian emerging market currencies. The exchange rate remained around 29.84 yuan on Tuesday.

Yang Jinlong's statement on “not defending a specific exchange rate level” created room for the Taiwan dollar to appreciate further. Chong believes, “$30 is not an insurmountable red line, especially in the face of the overall weakening trend of the US dollar.”