(Bloomberg) -- Taiwan dollar’s biggest rally in almost a quarter of a century is set to unwind as a looming global recession cuts into the island’s technology exports.

The currency, which has risen more than 4% this month to 30.90 per US dollar, will probably weaken to about 33 by the end of the first quarter, Mizuho Bank Ltd. and RBC Capital Markets forecast, as overseas shipments shrink for a second straight month. The outlook isn’t bright with a global recession looming and big tech shedding jobs, while Covid-19 infections rise in China -- the biggest trading partner of the export-reliant economy. 

“The recent rally has helped TWD recover some lost ground but with the semiconductor cycle turning lower and the purchasing managers indexes wallowing at very low levels, the growth argument to hold TWD looks handicapped,” said Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore.

Global tech companies, including HP Inc., are laying off people as they navigate a sustained downturn in personal computer demand while phone-makers have also warned of slowing sales. A slowdown in China is adding to the risk given Taiwan’s economic dependence on the nation. That will threaten the island’s exports, which make up a large source of its foreign exchange and surged to a record $446.5 billion last year.

Although the profits of Taiwan’s top three tech firms -- Taiwan Semiconductor Manufacturing Co., MediaTek Inc. and Hon Hai Precision Industry Co. -- may remain strong in the near term, the sector may see slowing growth or even contract next year, according to Bloomberg Intelligence Strategist Marvin Chen.


Despite its recent rebound, the Taiwan dollar is still down more than 10% this year -- set for its steepest slide since 1997 -- given a widening rate differential with the US. Its central bank delivered only a total of 50-basis-point rate hike this year, among the smallest in Asia, even as the Federal Reserve raised rates by 375 basis points. Taiwanese policymakers will next decide on rates on Dec. 15.

Goldman Sachs Group Inc. also said this month it’s underweight on the Taiwan dollar as geopolitical risks could lead to foreign selling of the island’s stocks. Having said that, local elections over the weekend indicate that the opposition Kuomintang -- which favors closer ties with China -- won in more cities and counties than the ruling party. 

The rise in power of the ruling Democratic Progressive Party had led to tension with China.

“We expect the Taiwan dollar to revert to 32-33 level in the medium term as the recession will dampen demand for Taiwan’s electronic exports,” said Ken Cheung, chief Asian FX strategist at Mizuho in Hong Kong. “The central bank’s rate-hike pace will also lag the Federal Reserve’s rate-hike cycle, and the currency will stay soft compared to its peers.”

Here are the key Asian economic data due this week:

  • Monday, Nov 28: South Korea retail Sales, Australia retail sales
  • Tuesday, Nov 29: Taiwan 3Q GDP, Japan jobless and retail sales
  • Wednesday, Nov 30: Bank of Thailand policy decision, Thailand trade data and balance of payments, South Korea industrial production, Australia CPI, China manufacturing PMI
  • Thursday, Dec 1: South Korea 3Q GDP and trade data, PMI for most countries in the region, Indonesia CPI
  • Friday, Dec 2: South Korea CPI

--With assistance from Cindy Wang.

(Corrects the fourth paragraph to remove inaccurate referene of other layoffs.)

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