There’s a dollar out there gaining a lot of attention as of late, and its not the greenback. In fact it’s the Taiwan dollar, which this week, saw its largest surge since 1988 (2 years before I was born and when Andrew was working for TD Economics…in case anyone was curious). This move in the currency, thought to be a product of increased US dollar hedging by local insurers and USD repatriation by exporters, has pushed Taiwan’s nominal effective exchange rate (or NEER) into record territory. The NEER (seen in the chart below), essentially reflects the performance of the Taiwan dollar (TWD) relative to a basket of other currencies. The monetary authority aims to ensure that that the NEER doesn’t move in excess of 5% in either direction relative to the 36 month moving average. The recent move earlier this week brought it to within 0.6% of breaching that limit. Remarks by Taiwan’s central bank on Monday evening attempted to encourage investors not to irresponsibly speculate on further appreciation of the TWD based on any changes in foreign exchange policy following the first round of tariff negotiations with the US.

 

 

Historically, Taiwan has adopted careful management of it’s currency in order to support it’s export focused economy. This has helped Taiwan become notably one of the world’s greatest export nations, especially in the semiconductor industry and other high-tech products. Prior to the volatile move in the currency, Taiwan’s current account surplus with the United States had already surged 83% last year, hitting a record of over $111 billion. This also means (based on balance of payments between the two nations) that there is significant Taiwanese investment in US Treasury securities. In other words, Taiwan is a significant holder of US debt creating a capital account surplus for the US. The US and Taiwan have had a long withstanding trade relationship and as of March of this year, the US accounted for approximately 25.7% of total Taiwanese exports. With Taiwan facing tariffs of up to 32% (paused until July), coupled with a stronger TWD has the potential to lead to job loss in many export oriented local companies.

 

As there is still much uncertainty surrounding the magnitude of these tariffs, companies continue to struggle to plan out capital expenditure products to protect margins. One company we have already seen make a commitment to US production is Taiwan Semiconductor Manufacturing Company (TSMC), which has pledged a $100 billion investment in five new fabrication plants in Arizona. Small to mid-size enterprises (SMEs) cannot make these investments as easily and therefore may look to shift production to lower tariff-facing nations. Not to mention, these SMEs in the short-term will have a harder time weathering any sustainment in a higher TWD.

 

The acceleration of exports extends past just the US, captured in the country’s percentage that total exports make up of GDP. In 2024, this figure reached 14.8%, representing 25.4% increase compared to 2023. With exports propelling the surplus to widen, there is growing sentiment that perhaps a weak currency policy may no longer be appropriate as it can cause further distortion of profitability among sectors. This sentiment is also supported by the fact that a stronger TWD has the ability to improve demand domestically and provide the public greater spending power; importing sectors and the service economy may be direct benefactors of such improvement. If we layer on an aging demographic, redirecting capital towards other competitive industries and creating stability in higher wage earning jobs may also help to attract foreign talent.

 

 

The longevity of Taiwan dollar strength remains to be seen, but has the potential to lead to some significant changes in the way the island operates from a domestic economic perspective. All of that to say, structural shifts take time and the moves so far seem to be transactional in nature. Where the tariff lever ends up will no doubt play a large part in the path forward for policy makers and corporations in Taiwan.

 

On behalf of Pyle Wealth Advisory, have a wonderful weekend and Happy Mother’s Day!

Ally Pyle

 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. “CIBC Private Wealth” is a registered trademark of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

 

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2025 CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc.

 

The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

Ally Pyle is an Investment Advisor with CIBC Wood Gundy in Peterborough. The views of Ally Pyle do not necessarily reflect those of CIBC World Markets Inc.

 

Clients are advised to seek advice regarding their circumstances from their personal tax and legal advisors.