The truth behind the New Taiwan Dollar soaring past the 30 mark: 2025 exchange rate forecast and investment strategies

Just 48 Hours, the New Taiwan Dollar Appreciated Nearly 10%: The Market Storm Behind a Historic Breakthrough

The New Taiwan dollar has recently experienced an astonishing surge, becoming an outlier among Asian export currencies. From May 2 to May 5, in just two trading days, the USD/NTD exchange rate plummeted from 31 to 29.59, an accumulated appreciation of nearly 10%, marking the largest single-day gain in 40 years at 5%. This intense volatility not only set multiple historical records but also triggered the third-largest trading volume in the history of the foreign exchange market.

To put this into perspective, just a month ago, the market was worried that the New Taiwan dollar might break through 34 or even 35. Who could have predicted such a dramatic shift in market sentiment within only 30 days? In contrast, other major Asian currencies appreciated more modestly during the same period: the Singapore dollar rose 1.41%, the Japanese yen increased 1.5%, and the Korean won surged 3.8%. The appreciation of the Taiwan dollar is truly unique.

Three Major Factors Igniting the Exchange Rate Surge

Trump’s Tariff Policies Reshape Market Expectations

When President Trump announced a 90-day delay in implementing reciprocal tariffs, two major market expectations shifted immediately. First, a wave of centralized procurement will sweep the globe, and Taiwan, as a key supplier of semiconductors and electronic products, is optimistic about its export prospects in the short term, providing strong fundamental support for the New Taiwan dollar. Second, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with impressive performance in the Taiwan stock market. These positive news flows triggered a frenzy of foreign capital inflows, becoming the first wave of driving force behind the New Taiwan dollar’s surge.

The Central Bank Faces Political and Economic Dilemmas

The key issue is that Trump’s “Fair and Reciprocal Trade Plan” explicitly targets “currency intervention” as a focus of review. This has raised concerns in the market: under the context of US-Taiwan negotiations, Taiwan’s central bank may find it difficult to intervene strongly in the forex market as it did in the past. This concern is not unfounded—Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-over-year, with the US trade surplus soaring 134% to $22.09 billion. Losing the traditional defense of central bank intervention, the New Taiwan dollar indeed faces enormous upward pressure.

On May 2, the day of the New Taiwan dollar’s single-day surge, the central bank issued an emergency statement but avoided addressing key issues. The central bank attributed the volatility to “market expectations that the US may request trading partners to appreciate their currencies,” but did not directly respond to market concerns about whether US-Taiwan tariff negotiations involve exchange rate clauses.

Financial Industry’s “Panic Operations” Amplify Short-term Volatility

UBS’s latest research report indicates that the abnormal volatility on May 2 exceeded what traditional economic indicators can explain. The analysis suggests that, besides market sentiment, large-scale forex hedging operations by Taiwanese insurers and corporations, as well as concentrated unwinding of New Taiwan dollar financing arbitrage trades, jointly caused the exchange rate fluctuations. UBS warns that when the New Taiwan dollar retraces, insurers and exporters may further increase their hedging ratios. Restoring forex hedging to trend levels alone could trigger about $100 billion USD in dollar selling pressure (equivalent to 14% of Taiwan’s GDP).

The Financial Times reports that Taiwanese life insurers hold up to $1.7 trillion USD in overseas assets (mainly US Treasuries) but have long lacked sufficient currency hedging. The main reason is that in the past, the central bank could effectively suppress sharp appreciation of the New Taiwan dollar, but now it faces a dilemma.

Future Outlook of USD/NTD: Limited Appreciation Space but Upward Trend

Appreciation Ceiling Near 28 Yuan

Although the market generally expects Trump’s administration to pressure the New Taiwan dollar to continue appreciating, most industry insiders believe that the possibility of the New Taiwan dollar reaching 28 to 1 USD is very low. An important indicator for assessing exchange rate fairness is the BIS’s real effective exchange rate index (REER), with 100 as the equilibrium value.

As of the end of March:

• The US dollar index was around 113, indicating significant overvaluation
• The New Taiwan dollar index remained around 96, in a reasonably undervalued state
• Major Asian export currencies showed more pronounced undervaluation, with the Japanese yen and Korean won indices at only 73 and 89 respectively

( Long-term Trend Still Supports Further Appreciation of the New Taiwan dollar

If we extend the observation period from the recent abnormal volatility to from the beginning of the year to now, the cumulative appreciation of the New Taiwan dollar against the USD roughly aligns with regional currencies:

• TWD up 8.74%
• JPY up 8.47%
• KRW up 7.17%

UBS’s latest report emphasizes that although the New Taiwan dollar has recently surged significantly, its appreciation trend is likely to continue from multiple dimensions. First, valuation models show that the New Taiwan dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher. Second, the forex derivatives market indicates the “strongest appreciation expectation in five years.” Furthermore, historical experience suggests that after such large single-day gains, immediate retracement is unlikely.

UBS advises investors not to prematurely reverse their positions but expects that when the trade-weighted index of the New Taiwan dollar rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention efforts to smooth out exchange rate fluctuations.

A Decade in Review: USD/NTD Exchange Rate Trends and the Lowest Global Volatility of the Taiwan Dollar

Over the past decade (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with a volatility of about 23%, making it the least volatile among global currencies. In comparison, the Japanese yen, once considered a safe-haven currency, experienced a volatility of up to 50% (USD/JPY between 99 and 161), twice that of the Taiwan dollar.

This stability is mainly due to the Taiwan dollar’s relatively small interest rate swings, with its movements primarily driven by US Federal Reserve policies. From 2015 to 2018, following China’s stock market crash and the European debt crisis, the Fed slowed its tapering and continued quantitative easing, strengthening the Taiwan dollar. After 2018, as the US economy improved and the Fed began raising interest rates, the USD appreciated until the pandemic hit in 2020, prompting the Fed to expand its balance sheet by doubling it in a short period.

Between 2020 and 2022, the US balance sheet grew from $4.5 trillion to $9 trillion, with interest rates dropping to zero, leading to USD depreciation and the Taiwan dollar soaring to 27 per USD. After 2022, US inflation spiraled out of control, prompting the Fed to rapidly hike interest rates, causing the USD to surge again, with USD/NTD rising from 27 to around 32. It was only after September 2024, when the Fed ended its high-interest cycle and began cutting rates, that the exchange rate retreated back to around 32.

The Fed’s quantitative easing history also had a profound impact. After the 2008 financial crisis, three rounds of QE were launched. By December 2013, the Fed announced tapering, and US market interest rates rose, capital flowed back to the US from emerging markets, and the USD/NTD exchange rate climbed from its lows in 2013 to 33.

How to Capture Investment Opportunities from the Appreciating Taiwan Dollar

) Short-term Trading Strategy: Risk Control Is Paramount

To participate in short-term forex fluctuations, it’s essential to start with small amounts to test the waters. Never impulsively increase your position; otherwise, a psychological blowout could end your trading career. You can conduct short-term trades on forex platforms with USD/TWD or related currency pairs, aiming to capture daily or intra-day volatility. Use low leverage and always set stop-loss points to protect yourself.

If you already hold USD assets, you can hedge using derivatives like forward contracts to lock in the appreciation gains. Many forex trading platforms offer demo accounts—practice with a simulated account first to test your strategies.

( Long-term Investment Approach: Diversify to Reduce Risks

Taiwan’s economy is solid, with booming semiconductor exports, and the Taiwan dollar may oscillate between 30 and 30.5. In the long run, it remains relatively strong. However, long-term investors should keep forex positions within 5%-10% of total assets. The rest should be diversified into other global assets to manage risk better.

Don’t put all your eggs in one basket. Consider investing in Taiwanese stocks or bonds to diversify. Even if exchange rates fluctuate more, your overall portfolio risk will be more controlled. Keep a close eye on the actions of Taiwan’s central bank and the latest developments in US-Taiwan trade, as these will directly influence exchange rate trends.

) Investment Psychology: Master Market Sentiment

Most people have a “ruler” in mind—the 30 mark. Many believe that USD below 30 is a good buy, while above 32, it’s time to sell. This can serve as a reference point for long-term forex investments. However, the real long-term driver of the Taiwan dollar’s exchange rate is not Taiwan’s central bank but the Fed’s policy stance. Pay close attention to Fed rate decisions, inflation data, and changes in its balance sheet—these are far more important than focusing solely on individual central bank statements.