Investing.com -- Taiwan’s dollar experienced a significant surge on Monday, registering an intraday gain of as much as 5%, the largest in over three decades. This development is attributed to speculation that exporters are converting their US dollar holdings into the local currency at an accelerated pace.

The Taiwan dollar extended its rally from Friday, reaching its strongest level in approximately three years. However, this surge led to a decrease in shares of Taiwan Semiconductor Manufacturing Co., as there is concern that the stronger local currency may impact its export earnings.

This surge in the local currency is also believed to be influenced by speculation that Taiwan’s large life insurers are hedging their US dollar debt due to the weakening outlook for the US dollar. This has given additional momentum to the Taiwan dollar.

There is also market speculation about a potential broader policy recalibration that could allow for a stronger local currency as part of a US-Taiwan trade deal. This follows President Trump’s advocacy for a weaker US dollar to boost America’s competitiveness.

In response to the speculation surrounding the surge in the local currency, Taiwan’s central bank held an emergency press briefing late on Monday. The bank attributed the two-day appreciation of the currency to market chatter and discouraged irresponsible speculation.

Trading was notably active on Monday, with the volume of US dollar-Taiwan dollar trades in Taipei reaching its highest level since the 2008 global financial crisis. Banks have been inundated with customer inquiries about the surge in the local currency.

Despite the strength of the Taiwan dollar, Taiwan’s monetary authority was not seen actively intervening in the market on Monday to limit its strength, a move it typically makes to smooth out volatility.

One of the reasons exporters are buying Taiwan dollars is due to expectations that the authorities will allow the currency to appreciate to facilitate a trade deal with the US. Taiwan’s government announced on Saturday that its negotiation team had conducted the first round of meetings with the US on May 1, although no details were released.