What is USD/TWD?
The USD/TWD is an exotic currency pair representing the exchange rate between the US dollar and the Taiwan dollar, the official currency of the Republic of Taiwan, or the number of Taiwan dollars (the quote currency) necessary to purchase one US dollar (the base currency).
Most central banks and financial institutions hold the United States dollar, which is the most actively traded currency in the world. Due to its dependability and stability, the dollar is the preferred currency for international transactions and reserves. In addition, the dollar's dominance in international trade has substantial implications for global exchange rates and economic policy, and it may serve as a benchmark for nations that desire to set or peg their currencies to the dollar's value.
TWD has been the official currency of the Republic of China's Taiwan Area since 1949 and has been issued by the Central Bank of Taiwan since 2000, which occasionally intervenes in the foreign exchange market to stabilise the TWD's value.
What affects the price of the USD/TWD pair?
Exports are the key driver of the Republic of Taiwan's economy due to Taiwan's dominance in the world's computer chip industry. Because of a scarcity of natural resources, Taiwan imports the majority of its basic commodities and energy. This reliance on imports can have an impact on the USD/TWD exchange rate, as fluctuations in the cost of imported goods and energy can affect the broader economy and currency value.
Taiwan's main trading partners are Mainland China and the United States, followed by Hong Kong. Therefore, Taiwan's trade balance with the United States, which represents the difference between exports and imports, can influence the USD/TWD exchange rate. A surplus in Taiwan's trade with the United States may support the Taiwan dollar, whereas a deficit may exert downward pressure on the currency.
Geopolitical events and external developments, like the US-China trade war, have had a direct impact on the TWD, which has a positive correlation with the Chinese yuan (CNY). Because China is Taiwan's most important trading partner, anything that impacts the Chinese economy affects Taiwan's economy.
Political tensions or commercial disputes between Taiwan and other countries can also have an impact on the USD/TWD exchange rate. Tensions in Taiwan-China relations, as China says reunification with Taiwan must be achieved and frequently resorts to the threat of force, are also a driver of market volatility. Any escalation of these hostilities may reduce investor confidence, causing the Taiwan dollar to depreciate. Improved relations or favourable developments between the two countries, on the other hand, have the potential to enhance the currency.
What to watch out for when trading USD/TWD?
Traders of USD/TWD should watch out for statements from key influential bodies in the US and Taiwan. These include:
- US Federal Reserve and Central Bank of the Republic of China (Taiwan) for interest rates and shifts in monetary policy
- Bureau of Economic Analysis (US Department of Commerce)
- US Department of Labour
