Yuan split drama unfolds: Yen hints at rate hikes soaring, TWD and KRW both falter, but RMB is optimistic and rises to 6.95?

▎Market Weekly Anomalies: Who Wins and Who Loses at a Glance

This week, the Asian currency markets showcased a “bittersweet” performance. The Bank of Japan Governor Kazuo Ueda’s interest rate hike hints instantly ignited the market, causing the yen to surge against the dollar to 155.39; the offshore RMB (CNH) also broke through the 7.07 mark, reaching a new high for the wave.

In stark contrast, the New Taiwan Dollar and the Korean Won became the “losers.” The New Taiwan Dollar opened lower due to selling pressure in the Taiwan stock market and foreign capital outflows, falling to a low of 31.46; it closed at 31.422, a decline of 1.4 cents. The Korean Won also weakened simultaneously. This relative performance of the Taiwan dollar against the Korean Won further highlights the divergence among Asian currencies—strong central banks rising on the trend, while currencies with capital shortages can only passively bear the pressure.

▎Why Are Hot Money Flows Receding? Three Root Causes Analyzed

1. Foreign Capital Profit-Taking, Capital Outflows

Entering November, concerns about the AI stock bubble intensified, and foreign investors sharply adjusted their holdings in Taiwan stocks, with monthly net sales exceeding NT$400 billion. Hot money flowed out, directly depressing the New Taiwan Dollar, which depreciated by 6.59 cents last month, retreating from the 30s to the 31.4 level. This chain reaction of capital withdrawal fundamentally reflects a turning point in market sentiment from optimism to caution.

2. The Fed’s Rate Cut Expectations Have Been Priced In, and the Wait-and-See Period Is Extended

Although the market had already anticipated the Federal Reserve (Fed) to cut rates in December, this week’s non-farm payroll data, inflation reports, and Chair Powell’s public comments continued to stir global capital nerves. Before the data becomes clearer, the dollar remains supported defensively, suppressing the upward space of all Asian currencies. In short, the market has shifted from chasing stories to observing calmly, and this transition period is extremely unfavorable for Asian currencies.

3. Exporters Have Not Yet Entered the Market, Buying Momentum Is Lacking

As the month begins, exporters are not rushing to convert foreign exchange earnings into NT dollars, making the Taiwan dollar almost a passive “playing by the foreign investors’ face” situation. Without substantial buying support, the exchange rate can only fluctuate with foreign capital movements.

▎Institutional Bold Forecast: Why Is the RMB Expected to Rise to 6.95?

While the Taiwan dollar struggles, ANZ Bank has issued an eye-catching forward-looking report, predicting that the RMB against the dollar may appreciate to 6.95 by the end of 2026, emphasizing that this appreciation will not significantly weaken China’s export competitiveness.

The logic supporting this forecast includes four major factors:

Policy Rate Differential Turning Point: China’s central bank is expected to cut rates less than the Fed next year, gradually easing the US-China interest rate gap, and the interest rate differential reversal will no longer be a heavy burden for the RMB.

Economic Resilience and Easing External Tensions: Although China’s economy faces downward pressure, overall risks remain manageable, and US-China trade frictions are expected to gradually ease, providing fundamental support for the RMB exchange rate.

Undervaluation of the Exchange Rate: ANZ believes the RMB’s real effective exchange rate is still undervalued, and moderate appreciation can help boost domestic residents’ purchasing power and stimulate consumption, with limited negative impact on exports.

Corporate FX Settlement Wave Brewing: If the dollar remains weak, Chinese exporters will be more willing to convert foreign exchange income into RMB, creating additional exchange rate support.

ANZ further recommends: through selling 6-month USD/HKD forward contracts, to establish a bullish position on the RMB. Although this involves carrying interest rate costs, the institution is confident in the RMB’s appreciation potential over the next six months.

▎Short-term Outlook for the New Taiwan Dollar and Korean Won: Three Key Observations

Foreign Capital Flows Are the Deciding Factor: The key to the Taiwan dollar’s future depends on whether Taiwan stocks can stabilize and stop falling. If foreign capital turns into net inflows, the NT dollar may return to an appreciation track. Otherwise, the relative weakness of the NT dollar against the Korean Won and other Asian currencies will continue.

Regional Leader Effect Exists but Is Limited: If the yen continues to strengthen due to rate hike expectations, it may boost market sentiment, but the Korean and Taiwan dollars still need improvements in their own economic fundamentals and capital flows to benefit simultaneously.

The 31.3 to 31.5 Range Becomes a Tug-of-War Zone: Currency traders generally expect the NT dollar to fluctuate within this range in the short term, with 31.5 as a psychological barrier. If broken below, further support levels need to be observed.

▎Asset Allocation Strategies: How to Respond

For investors holding USD assets, closely monitoring the latest Fed developments is crucial. If rate cut expectations rise again, the dollar may face weakening pressure, and timely adjustments will be the best approach.

For those optimistic about RMB appreciation potential, using bank foreign currency accounts or related financial products to gradually position in RMB can capture appreciation gains from a medium- to long-term perspective.

Taiwan dollar investors and business owners can leverage the current range-bound fluctuations, preparing to exchange currency near 31.5, to meet future operational needs and investment plans.

▶ Market Insights

The currency market is fundamentally a “expectation game.” A rate hike hint can send the yen soaring, capital outflows can pressure the NT dollar alone, and institutions have already “bet” on the RMB’s appreciation next year. As divergence among Asian currencies becomes more pronounced, investors and corporate decision-makers must enhance their sensitivity to central bank policies, international capital flows, and microscopic economic data changes to navigate the complex and volatile global currency markets.