The USD/TWD exchange rate has risen in the past three days as investors react to the ongoing political developments in Taiwan. The pair rose to 31.60 on Friday, higher than this month’s low of 31.30. It remains 2.72% below the highest point this year.
Taiwan election aheadThe biggest catalyst for the Taiwan dollar is the upcoming election, which will likely be the most consequential for the region. The election pits the ruling Democratic Progressive Party (DPP) with a few opposition parties.
A few weeks ago, the main opposition parties banded together and pledged to front a joint candidate. On Friday, however, these parties filed for separate presidential candidates, raising the possibility that the ruling party will win the upcoming election.
This is an important election since the ruling party has committed to defend Taiwan from an invasion from China. It has received billions of dollars in investment from the United States and other Western governments.
The opposition parties, on the other hand, are aiming to have closer ties with China. They also value negotiations to prevent a large scale in Taiwan. This view has been further solidified by the ongoing war in Ukraine that has led to thousands of deaths and the destruction of the country.
China has said that the upcoming election will be a choice between “peace and war”. Therefore, if the ruling party wins, there is a likelihood that China will invade Taiwan in the next few years.
Such an invasion will have negative implications on the global economy because of the importance of Taiwan. It is the biggest manufacturer of semiconductors. Also, Evergreen and Yang Ming Marine are some of the biggest ocean shipping companies in the world.
USD/TWD technical analysis
The daily chart shows that the USD to TWD exchange rate has been under pressure in the past few days. It has dropped from this month’s high of 32.42 to a low of 31.30.
The pair remains below the 100-day and 50-day Exponential Moving Averages (EMA). These two averages are about to form a bearish crossover. It is also 6.56% above the lowest point this year and 15.35% from the 2022 lows.
The USD/TWD pair has also formed a rising wedge pattern, which is usually a bearish sign. Therefore, the pair will likely resume the downward trend as sellers target the key support at 31.0.
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