TWD: Three Reasons To Be Bullish

We maintain a positive bias on the Taiwanese dollar despite attempts by the local authorities to curb speculative activity. In our view, the unit remains fundamentally undervalued, and with the economic recovery likely to sustain momentum in H110, the Central Bank of the Republic of China (CBC) will be more open to FX appreciation (as opposed to rate hikes) in a bid to keep price expectations under wraps. With this in mind, we are pencilling in steady gains to TWD31.00/US$ and TWD30.00/US$ by end-2010 and end-2011, respectively - pretty much in line with the forwards market. We are even more bullish TWD versus the euro, eyeing up roughly 13.5% of gains through to end-2011.

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