USD/TWD → Taiwan stocks

Common explanation (Ripple · Taiwan dollar strengthens, Taiwan stocks rise): Foreign money flowing in lifts both the Taiwan dollar and Taiwan stocks.

This issue: USD/TWD at 76 (warm), Taiwan stocks at 99 (hot) — both above normal, not in line with the common explanation (this is an inverse link).

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

USD/TWD: 3.9% above its 10-year average. Taiwan stocks: 171% above its 10-year average.

Tests

Does this link hold up?

Common explanationForeign money flowing in lifts both the Taiwan dollar and Taiwan stocksSource: Central Bank of the Republic of China (Taiwan), “近期新台幣升值，主要係外資淨流入” (2017).
Tested against our dataAgreement between the positions of USD/TWD and Taiwan stocks (same month), measured in the direction of the common explanation: +0.03 (an opposite-direction link: the raw correlation is −0.03, and a negative correlation fits, so the sign is flipped). Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 14 of 15; data start only in 2007. In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.Not visible in our data
Periods when it did not holdAcross 15 5-year periods, out of step in 2010⁠–⁠2015.

History

The two lines, overlaid

Data: Central Bank of the Republic of China (Taiwan); Central Bank of the Republic of China (Taiwan) (monthly average of the TAIEX, the Taiwan Stock Exchange Capitalization Weighted Stock Index). Positions: our calculation.

USD/TWDTaiwan stocks

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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