News Briefing
Tension in the Taiwan Strait has sped up the outflow of foreign capital, whereas the short-term depreciation of the Taiwan dollar has continued, with the price leveling off at a figure of 30 (reappearing after more than two years). However, market responses of foreign exchange to the Taiwan Strait crisis have come to an end, based on the analysis of exchange rate experts, and the scenario follow-up should return to basics. Being dominated by the US Federal Reserve (Fed) remains the primary concern. It is expected that the dollar’s strength will peak by the end of the year, and the exchange rate of the Taiwan dollar at NT 30 will become the new norm.
Impact Analysis
To curb the pressure of high inflation in the United States, the US Federal Reserve announced a series of policies for an interest rate hike on March 17 this year, helping international funds flow back to the US. The exchange rate of the New Taiwan dollar against the US dollar has continued to depreciate since March. Most of all, the exchange rate broke through the threshold of NT30 at the end of July, with a cumulative decline this year, reaching more than 8%, as of the 8th of August. Nonetheless, the international oil price dropped significantly after reaching the price of US$120 in mid-June and has now returned to the level it was before the Russian-Ukrainian war, which has eased the anxiety of inflation in the market. The market is also concerned that it will lead to economic regression and a rise in unemployment if interest rates continue to soar. Therefore, it is extremely probable that the hike in interest rates by the FED will slow down in the future, and the depreciation pressure of the New Taiwan dollar will thus be reduced. Hence, it is expected the average exchange rate of the New Taiwan dollar against that of the US in the third quarter should come around at NT30.
Since Taiwan's PCB industry and other electronics industries are export-oriented, most of the customer orders are denominated in US dollars. In the second quarter of 2022, the average exchange rate of the New Taiwan dollar against the US dollar was NT$29.46, a depreciation of 5.25% as compared with that of the same period last year. Such an extent of depreciation should be helpful to company revenue performance. Aside from affecting the import and export trade of the volume of manufacturers, the exchange rate will also affect the profit of company performance. As generally estimated, for every 1% fluctuation of the New Taiwan dollar it should affect the gross profit rate and profit rate by about 0.2%~0.4%. This can be considered a form of noticeable change by the PCB or other generally low-margin industries. However, though the trade of Taiwanese PCB has gradually increased its proportion of high-end manufacturing, its mastery, and control over the upstream high-end supply chain is relatively low, including IC substrate, FPC materials and some key equipment. This should then burden the manufacturers’ increased capital expenditure in this regard.