BARX Trade for the week ahead: Long USDTWD 9m NDF: FXWW

From the FXWW Chatroom – The TWD has remained stable to the rising USD pressures, given Taiwan’s savings surplus. However, the continued rise in US-China trade tensions have increased concerns on the potential effect of slowing trade on the Asian economies with high trade exposure to China. Downside risks to China’s growth are likely to weigh on Taiwan, in our view. The TWD REER has also become more expensive, given the depreciation in the CNY and the currencies of Taiwan’s other major Asian trading partners. Finally, TWD is sensitive to the sentiment in global equity markets, in particular to the tech sector, where rising US real rate expectations have led to a re-pricing in stock valuations. A decline in global assets would lead Taiwanese lifers to unwind their short USDTWD hedges, exaggerating the upside move for the pair. Given the inverted NDF curve, we prefer long-dated NDF to position for long USDTWD (Figure 5). We recommend buying the 9m NDF targeting 31.20, stop at 30.10.

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