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September 24, 2017

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The age of a mighty Taiwan dollar

TAIPEI, Taiwan -- A public hearing scheduled for 9:30 a.m. EST on May 18 at the U.S. Department of Commerce in Washington could shape the fate of 16 nations -- including Taiwan.

By the end of June, information gathered at the public hearing will be submitted to the "Omnibus Report on Significant Trade Deficits."

The public hearing and the report come after U.S. President Donald Trump ordered an investigation into economies with a hefty trade surplus with the U.S.

The 16 listed countries are to be examined for potential "trade abuse" and could be subject to punitive measures if deemed to have taken deliberate measures, including currency manipulation, that may have contributed to the U.S.'s burgeoning trade deficit.

Though not labeled as a currency manipulator outright in the U.S.' biannual foreign exchange policy report, Taiwan has been consistently placed on the country's "currency watch list."

Ultimately, this chain of events would actively restrict the capacity of Taiwan's central bank's capacity to suppress the value of the New Taiwan Dollar.

Trump Takes Harder Line on Currencies

Trump isn't the first U.S. president to express dissatisfaction with major trade partners preventing their domestic currencies from rising, but it is no secret he has been irked by the U.S. dollar being "too strong."

With the wild card president keeping close tabs on the U.S.' principle trading partners, even Taiwan Central Bank chief Perng Fai-Nan will find it hard to defend the New Taiwan Dollar.

Despite signs of a slow-down and factors such as "hot money" and geopolitical events, the Taiwan dollar is set to continue to strengthen until the end of the year, according to Taiwan Institute of Economic Research analyst Wu Meng-dao.

OK, What Now?

"This will be my last term, as well as my last civil servant position," Perng said last September.

For nearly two decades, Perng has been best known for stemming the New Taiwan Dollar's rise, with market watchers suggesting his departure could mark a possible turning point.

"The New Taiwan Dollar is moving toward uncharted territory. We will eventually all need to get used to that new world order," an unnamed market analyst said.

With less intervention from the central bank, Taiwan's currency will become far more volatile than before, the analyst said.

Meanwhile, the upward pressure on the currency is not likely to ease up anytime soon, if Trump continues to hold fast to his obsession over American trade deficits.

"From the government, corporations to individuals … everyone should get ready for when the exchange rate (against the greenback) drops below NT$30," the analyst added.

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