The Taiwan economy saw its growth rate rising to its two-year high in the fourth quarter of 2016, showing that the central bank rate cuts in 2015 and 2016 have paid off.
Taiwan factory worker
A worker in a factory in Taiwan Reuters

The Taiwan dollar held near an eight-month high against the US dollar while the main share index ended 0.8% higher, also tracking the gains of its regional peers.

USD/TWD dropped to 30.68 from the previous close of 30.788. The pair had touched a low of 30.66 on Tuesday which was its lowest since June last year, translating to an 8-month high for the local dollar.

In fact, the Taiwanese currency has been on a rising track since January. It gained more than 4% in the first month of the year, and so far in February, it has rallied 1.8% against the greenback.

As per the official statistics released on Wednesday (Feb 15), Taiwan expanded 2.88% from a year earlier in the three months to December, its highest growth rate during the same period two years ago.

Taiwan had posted an year-on-year GDP growth rate of 2.03% in November and the market consensus was for a growth of 2.58% in the Q4.

Taiwan had seen negative growth rates in consecutive three quarters from Q3 2015, and after getting back to the positive territory, the growth rates have been steadily rising.

Sequentially, the GDP growth rate was 0.47% in Q4 2016.

Not only GDP growth, inflation is also on the rise in Taiwan for the past several quarters. On 8 February, Taiwan said consumer price inflation rose 2.25% in January, a 1-year high, from December's rate of 1.7% and beating market consensus of 2.07%.

Analysts say that the recovery in growth and inflation was mainly helped by low interest rates in the country. The Central Bank of the Republic of China (Taiwan) had kept the main policy interest rate at 1.375% at the 22 December meeting, which is a 6-year low.

Taiwan had slashed the rates twice in 2015 and twice last year and the latest was on 30 June 2016 when the benchmark interest rate was 1.5%.

USD/TWD Technicals

The USD/TWD pair is now testing a key long term support at the bottom of an uptrending channel in place since May 2011. If this is broken, it will aim 30.40 and then 29.85 ahead of 28.88 and 28.48, break of which will take the local dollar to a new multi-year high.

In case of a reversal, the pair will face resistance at 31.21, 31.60 and then 32.0 ahead of 32.50.