The Taiwanese dollar continued gaining against the USD as traders refocused on the dovish Federal Reserve and the upcoming Taiwan election. The USD/TWD exchange rate retreated to a low of 30.55, its lowest point since June 13th. It has dropped by almost 6% from its highest point in 2023.

One of the biggest forex news of January will be the closely watched Taiwan election. This will be a crucial election because its outcome will determine the future of China, the US, and Taiwan.

The election, which will take place on January 13th, will see them elect their next leader. William Lai Ching-te, the current vice president is expected to win the election but things could change. 

The other likely winners are Hou Yu-ih of the opposition Kuomintang (KMT) party and Ko Wen-je of the Taiwan People’s Party. All these candidates are campaigning to have a friendly relationship between Taiwan and Beijing. China favors the Kuomintang candidate.

Taiwan’s election comes at a time when the economy is struggling. The most recent data revealed that the country’s manufacturing PMI retreated from 48.30 in November to 47.10 in December. A PMI reading of less than 50 is a sign that a sector is contracting.

Taiwan is seeing pressure as many companies diversify their supply chains, especially in the semiconductor industry. For example, Taiwan Semiconductor is building a plant in Arizona and has allocated $11 billion for a plant in Germany.

Other big manufacturers like MediaTek, Foxconn, and Quanta Computer are expanding internationally. The goal is to have diversified supply chains if China invades Taiwan in the coming years.

The USD/TWD price has also pulled back because of the weaker US dollar index (DXY). The greenback has retreated because of the recent change of tune by the Federal Reserve. In its last decision of the year, the Fed decided to leave rates unchanged. It also pointed to at least three cuts in 2024.

USD/TWD chart by TradingView

The USD to Taiwan dollar has been in a downtrend in the past few months. It has slipped from a high of 32.50 in October to about 30. Along the way, the pair has crashed below all moving averages. A closer look shows that it is about to form a death cross, which happens when the 200-day and 50-day moving averages cross over. 

Therefore, the outlook for the USD/TWD is bearish, as traders wait for the upcoming election. If this happens, the next point to watch will be the psychological level at 30, 2.60% below the current level.

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