We are living in unprecedented times with crazy events happening everyday that have either never happened or once in many decades.
While this news of the Taiwanese dollar appreciating nearly 10% in the last 3 days may not seem like a piece of major news, as it may be happening because of “Easing trade tensions” between US & China as some headlines suggest.
The actual reason might be something else
According to RItesh jain, Founder- Pinetree and a macro analyst
This post by FT offers a new explanation as to what’s really cooking beneath the surface
Taiwanese insurance companies and even households have unhedged exposure to dollar-denominated policies and assets to the tune of 100% of the country’s GDP, and when things started going downhill, they suddenly realized…Damn we need to hedge otherwise we are in deep shit.
While this move is playing out, suddenly other countries like South Korea are thinking about how to play this move out. Suddenly, many countries are facing the prospect of the dollar not being that safe anymore, especially considering their unbelievably large exposure.
Currency appreciation, in general, for these countries may seem like an easier thing to deal with as compared to currency getting dumped, the tricky part is that the counterparty is the US …which, unlike the past, is not so stable and foreign investor friendly anymore.
World is probably not yet ready to imagine the consequences of a weak dollar. There will be many countries that need to change how their economies function in the future if the weak dollar trade plays off in the coming years.
Lets watch the drama unfold.
I have been a dollar bear for years, and it is finally playing out - Slowly but surely.