Taiwan Dollar: Range trade expected after CPI surprise against US Dollar – Commerzbank

Commerzbank highlights that Taiwan’s August CPI undershot expectations due to favourable food base effects, but core inflation remains above the CBC’s forecast. The bank sees scope for a modest rate hike as growth stays robust and inflation risks persist. In FX, they expect USD/TWD to consolidate in a 31.30–31.80 range, with JPY strength supportive but higher Oil prices capping TWD gains.

CBC tightening bias and bounded currency

"August CPI rose less than expected by 2.0% yoy (Bloomberg consensus: 2.4%) vs 2.5% in July, the lowest reading since April. Softer food inflation drove the moderation, bringing headline inflation a tad above the Central Bank of the Republic of China's (CBC) 2% target for the first time in four months."

"Core CPI also eased to 2.3% (Bloomberg consensus: 2.5%) vs 2.4% in July, pointing to some softening in underlying price pressures. Nonetheless, core CPI remained above the CBC's 2026 forecast of 1.9% for the fourth consecutive month."

"On monetary policy, the CBC could raise its policy rate by 12.5bp to 2.125% at its next quarterly meeting on 17 September. The robust growth backdrop gives policymakers scope to remain focused on upside inflation risks."

"While headline inflation moderated to around 2% in August, the decline was largely driven by temporary food base effects, which should fade in the coming months. Meanwhile, weather-related supply risks and renewed geopolitical uncertainty could keep food and energy inflation elevated. We therefore continue to see the balance of risks tilted towards further modest tightening."

"Looking ahead, JPY strength could lend further support to the TWD, although higher global crude prices may limit gains. As such, USD/TWD could consolidate within the 31.30-31.80 range in the near term."

"In FX, USD/TWD was little changed around 31.55 yesterday, near a three-month low amid broad USD weakness and sustained portfolio inflows. Foreign investors have net bought USD4.2bn of Taiwanese equities over the past two sessions. The Taiex remains Asia's second-best performing equity index, up 62.6% year-to-date, behind only South Korea's Kospi (+65.0%)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)