New Taiwan Dollar rises above 29.59! Is the 30-year pattern of the US dollar exchange rate broken? The exchange market script investors must watch in 2025

The New Taiwan dollar has recently shown astonishing market performance. In just two trading days, the USD/TWD exchange rate plummeted from 31 to 29.59, with a cumulative increase approaching 10%, creating the largest single-day surge in 40 years. What is hidden behind this intense volatility? Will the TWD continue to appreciate? How should investors respond?

From Fear to Frenzy: Market Turning Point in TWD Appreciation

One month ago, the market was worried that the New Taiwan dollar would break below 34 or even 35. Now, the concern is that the TWD is rising too fast. This dramatic reversal of expectations is precisely the trap that forex markets often set for investors.

On May 2, the TWD against the USD surged 5% in a single day, closing at 31.064, a 15-month high. On May 5, the TWD continued to strengthen by 4.92%, breaking the psychological 30 mark intraday, with a high of 29.59. The entire forex market experienced the third-largest trading volume in history, marking the biggest market event of the year.

Interestingly, during the same period, major Asian currencies also appreciated, such as the Singapore dollar up 1.41%, the Japanese yen up 1.5%, and the Korean won up 3.8%. However, in terms of the surge’s ferocity, the TWD is unmatched.

Why Did the TWD Skyrocket? Three Layers of Logic Analysis

Layer 1: Trump’s Tariff Policies Ignite the Fuse

Policy factors are always the strongest drivers in forex markets. After Trump announced a 90-day delay in implementing tariff policies, two major expectations emerged: first, global companies would concentrate procurement from Taiwan, leading to a short-term influx of foreign capital; second, the IMF raised Taiwan’s economic growth forecast, coupled with stellar performance of the Taiwan stock market. These positive factors together underpin the fundamental support for the TWD’s appreciation.

Layer 2: The Central Bank’s Dilemma and Powerlessness

On May 2, the Central Bank issued a statement clarifying that it would not intervene in the forex market, yet it was vague about whether exchange rate clauses would be included in US-Taiwan negotiations. It’s important to note that the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a key review point, putting the central bank in a dilemma: intervention might be viewed by the US as currency manipulation, while not intervening allows the TWD to surge.

Taiwan’s trade surplus in Q1 reached USD 23.57 billion, up 23% year-on-year, with the US trade surplus soaring 134% to USD 22.09 billion. Without the central bank’s support, the TWD indeed faces enormous upward pressure.

Layer 3: The Financial System’s “Panic-Hedging”

UBS research reveals structural risks behind this surge. Taiwanese insurers hold USD 1.7 trillion in overseas assets but have long lacked sufficient currency hedging. Historically, the central bank could effectively suppress TWD appreciation, so insurers were complacent. Now, with the central bank caught in political dilemmas, insurers panic and rush to hedge, which further amplifies exchange rate volatility.

UBS warns that restoring currency hedging to trend levels alone could trigger about USD 100 billion in selling pressure (equivalent to 14% of Taiwan’s GDP), a potential risk comparable to a nuclear threat.

Has the 30-Year USD Exchange Rate Pattern Failed? Long-term Trend Interpretation

Looking back over the past decade, USD/TWD fluctuated between 27 and 34, with about 23% volatility. Compared to the JPY/USD range of 99 to 161, with 50% volatility, the TWD’s fluctuations are relatively moderate.

However, the historical context is worth noting: from 2015 to 2018, US quantitative easing strengthened the TWD; after 2018, US rate hikes caused a brief weakening; from 2020 to 2022, the US balance sheet expanded from USD 4.5 trillion to USD 9 trillion, pushing the TWD to 27 per USD; after 2022, aggressive US rate hikes to combat inflation caused the USD to surge back to 32–33. It wasn’t until September 2024, when the Fed began cutting rates, that the exchange rate loosened again.

The truth is: The primary determinant of the TWD exchange rate is not Taiwan’s central bank but the US Federal Reserve’s monetary policy. The shift in interest rate policies is the ultimate driver of long-term exchange rate trends.

Will the TWD Continue to Rise? Three Key Questions for the Future

Question 1: Is 28 possible?

Although Trump’s administration’s pressure for appreciation exists, industry consensus is that the probability of the TWD reaching 28 is very low. The reasons are simple—economic fundamentals have an upper limit, and US political pressure also has boundaries.

Question 2: How to judge a reasonable valuation?

Look at the BIS real effective exchange rate (REER) index for clarity. This index uses 100 as the equilibrium value; above 100 indicates overvaluation, below 100 undervaluation. As of the end of March:

• USD REER around 113 → significantly overvalued
• TWD REER around 96 → reasonably undervalued
• JPY REER only 73 → more severely undervalued
• KRW REER about 89 → also undervalued

This shows that most Asian export currencies are undervalued, and the TWD still has room to appreciate, but not infinitely.

Question 3: Is the short-term surge overdone?

UBS’s valuation model indicates that the TWD has shifted from moderate undervaluation to a fair value exceeding the mean by 2.7 standard deviations. Forex derivatives markets show the strongest appreciation expectation in five years. Historically, after such a large single-day surge, immediate correction is unlikely, but UBS expects that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify.

How to Capitalize on This Forex Market Opportunity? Practical Investment Guide

Advice for Forex veterans:

Trade USD/TWD directly on forex platforms for short-term gains, capturing daily or even intraday volatility; or use forward contracts for hedging, locking in the appreciation benefits. These strategies are suitable for experienced investors with high risk tolerance.

Must-know tips for beginners:

Want to try short-term trading? Remember: start with small amounts, test the waters; never rush to add positions impulsively. A single emotional outburst can lead to immediate exit. Many forex platforms offer demo accounts—practice first to test your trading strategies.

Long-term investors’ allocation advice:

Taiwan’s economy remains solid, with booming semiconductor exports. Expect the TWD to fluctuate between 30 and 30.5. Long-term, it remains relatively strong, but forex positions should be kept at 5–10% of total assets. Diversify remaining funds into global assets to manage risk effectively.

Use low leverage when trading USD/TWD, set clear stop-loss points to protect capital. Keep a close eye on Taiwan’s central bank actions and US-Taiwan trade developments, as these factors will directly influence future exchange rates. Combine with investments in Taiwan stocks or bonds; even with high volatility, your overall portfolio can stay stable.

Note: The Market Logic Behind the 30-Year USD Exchange Rate

Over the past decade, the trajectory of the TWD against the USD clearly reflects the evolution of global central bank policies. From quantitative easing to tightening, from zero to high interest rates, each policy shift leaves a deep imprint on the exchange rate.

Most investors have a “ruler”: if USD is below 30, it’s a good buy; above 32, it’s time to sell. But this ruler is based on the assumption that central banks can control the rate. Now, with increased geopolitical and trade policy uncertainties, this ruler may need recalibration.

In any case, the long-term trend of USD/TWD ultimately depends on the interaction between US monetary policy and global economic fundamentals. Short-term volatility may be fierce, but it cannot change this fundamental logic.