Taiwan Dollar: Range trade expected after CPI surprise against US Dollar – Commerzbank

Commerzbank anticipates a range-bound trade for the Taiwan Dollar (TWD) following a surprise in the August Consumer Price Index (CPI) compared to US Dollar expectations. The bank's analysis indicates that Taiwan's CPI fell short of forecasts due to favorable food base effects; however, core inflation remains above the Central Bank of the Republic of China's (CBC) forecast.

The bank sees potential for a modest rate increase as growth remains strong and inflation risks persist. In the foreign exchange market, Commerzbank expects the USD/TWD exchange rate to stay within a range of 31.30-31.80. Although JPY strength provides some support, heightened oil prices may put a cap on TWD gains. August's CPI data showed a 2% year-over-year increase, which was lower than the Bloomberg consensus of 2.4% and July's 2.5%.

This modest moderation in headline inflation brought it slightly above the CBC's 2% target for the first time in four months.

Core CPI also saw a slight easing to 2.3% (compared to Bloomberg consensus of 2.5%), still above the CBC's 1.9% forecast for 2026. Monetary policy could still see a 12.5 basis point hike in the policy rate to 2.125% during the CBC's next quarterly meeting on September 17. While the August CPI moderation was primarily due to temporary food base effects, traders should keep an eye on weather-related supply risks and renewed geopolitical uncertainty.

These factors may continue to elevate food and energy inflation. Looking ahead, JPY strength may provide additional support to the TWD, but higher global crude prices could limit gains. In the near term, USD/TWD is anticipated to consolidate within the 31.30-31.80 range.