Will the Taiwan dollar overtake yuan as Asia’s top funding currency?

Intervention risks in the yuan are increasing the Taiwan dollar’s attractiveness.

The Taiwan dollar is reportedly on the verge of overtaking the yuan as Asia’s best carry-trade target, given its lower risk of interest-rate and currency volatility, reports Bloomberg, citing analysts.

A strategy of borrowing the island’s currency to invest in higher-yielding alternatives has generated the second-highest return over the past month amongst Asian currencies behind the yuan.

Taiwan’s currency may soon replace its mainland peer as the region’s favoured carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs.

“The Taiwan dollar has been one of the better funding currencies in Asia along with the offshore yuan, but with recent intervention risks in the yuan placing bigger chances of a short squeeze, Taiwan dollar becomes much more attractive,” said Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence.

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