The New Taiwan Dollar skyrocketed past 30! Will the US dollar's future trend hit new highs? May Market Analysis Preview

The recent performance of the New Taiwan Dollar has been astonishing, soaring nearly 10% in just two trading days, successfully breaking through the 30 yuan mark, a rally unique among Asian currencies. On May 2nd, it surged 5% in a single day, rewriting the largest single-day increase in 40 years, followed by another surge of 4.92% on May 5th, with an intraday high of 29.59 yuan. How will the US dollar's future trend develop? How much room for appreciation remains? This article provides an in-depth analysis of the true logic behind the Taiwan dollar exchange rate.

## Can the US dollar keep rising? Three market signals give us clues

**Signal 1: 28 yuan is a psychological barrier**

Although recent gains have been fierce, industry insiders generally believe that the probability of the New Taiwan Dollar rising to 28 yuan per US dollar is low. What is this judgment based on?

The key lies in measuring with the BIS(Real Effective Exchange Rate Index)REER( from the Bank for International Settlements. This index uses 100 as the baseline; above 100 indicates overvaluation, below 100 indicates undervaluation. As of the end of March, the dollar index was about 113 (significantly overvalued), while the Taiwan dollar index remained around 96 (reasonably undervalued). This suggests that the Taiwan dollar still has room to appreciate but won't skyrocket without limit.

**Signal 2: Regional currencies are rising together, Taiwan dollar is not unique**

Looking at the overall performance from the beginning of the year:
- Taiwan dollar appreciated 8.74%
- Yen appreciated 8.47%
- Korean won appreciated 7.17%

At first glance, the Taiwan dollar's appreciation seems the largest, but over a longer timeframe, the trend of Asian currencies remains synchronized. This surge is more of a regional phenomenon rather than a unique opportunity for the Taiwan dollar.

**Signal 3: Institutional forecasts indicate further appreciation, but limited space**

UBS's latest analysis points out that, based on valuation models, FX derivatives markets, and historical experience, the Taiwan dollar's appreciation trend will likely continue. However, when the trade-weighted index of the Taiwan dollar rises about 3% (approaching the central bank's tolerance limit), official interventions may intensify to stabilize the exchange rate.

## Why did the US dollar suddenly surge? Three key drivers explained

**Driver 1: Trump’s tariff policies ignite the fuse**

After Trump’s administration announced a 90-day delay in implementing reciprocal tariffs, two major market expectations emerged: a global procurement wave, with Taiwan as a major export beneficiary in the short term; simultaneously, the IMF unexpectedly raised Taiwan’s economic growth forecast. These positive news flows caused foreign capital to flood in, becoming the first wave of upward momentum for the Taiwan dollar.

**Driver 2: The central bank faces a dilemma, limited intervention capacity**

Trump’s "Fair Reciprocity Plan" explicitly emphasizes "FX intervention" as a key review point. This puts the central bank in a tricky position—while it previously could intervene strongly to stabilize the currency, over-intervention now risks being labeled a currency manipulator by the US Treasury.

In reality, Taiwan’s trade surplus in Q1 reached $23.57 billion (up 23% year-on-year), with the US trade surplus soaring 134% to $22.09 billion. If the central bank’s intervention tools are limited, the Taiwan dollar faces significant appreciation pressure.

**Driver 3: Panic hedging by the financial industry**

UBS reports that the abnormal volatility of the Taiwan dollar on May 2 exceeded what traditional economic indicators could explain. Besides market sentiment, large-scale FX hedging operations by Taiwanese insurers and exporters, along with concentrated unwinding of Taiwan dollar financing arbitrage trades, contributed to this exchange rate movement.

Especially, life insurers hold up to $1.7 trillion in overseas assets (mainly US Treasuries) but lack sufficient FX hedging measures. Historically, they relied on the central bank to suppress the exchange rate, but now face risks, leading to concentrated dollar selling and Taiwan dollar buying. UBS warns that restoring hedging scales to trend levels could trigger about $100 billion in dollar selling pressure (equivalent to 14% of Taiwan’s GDP).

## A decade of Taiwan dollar temperament: historical reference for the US dollar's future

Looking back over ten years (October 2014 to October 2024), the Taiwan dollar’s exchange rate against the US dollar fluctuated between 27 and 34, a volatility of about 23%, relatively small compared to global currencies.

Interestingly, the yen, considered a safe-haven currency, experienced a 50% fluctuation (from 99 to 161 yen per dollar), twice that of the Taiwan dollar. Why? Because Taiwan’s interest rate changes are small, and its exchange rate mainly depends on the Federal Reserve’s rate hikes and cuts, not the Taiwan central bank.

**2015–2018**: China stock market crash and European debt crisis, US slowed tapering and continued QE, Taiwan dollar began to strengthen.

**Post-2018**: US rate hikes paused the appreciation trend. Unexpectedly, in 2020, with the pandemic, the Fed expanded its balance sheet from $4.5 trillion to $9 trillion, rates dropped to zero, the US dollar depreciated sharply, and the Taiwan dollar hit 27 to 1 USD.

**After 2022**: US inflation spiraled out of control, the Fed rapidly raised interest rates, the US dollar surged, and the exchange rate moved from 27 back to 32–33. It wasn’t until September 2024, when the Fed ended this high-rate cycle and started cutting, that the exchange rate retreated.

## How should investors grasp the US dollar’s future trend?

**Beginners**: Use small amounts to test the waters, experience FX volatility. Don’t keep adding positions; maintaining a stable mindset is key. Many trading platforms offer demo accounts, perfect for practicing and testing strategies.

**Short-term traders**: If experienced, you can trade USD/NTD on FX platforms, capturing daily or intra-day fluctuations. Keep a close eye on Taiwan’s central bank moves and US-Taiwan trade developments, as these directly influence the exchange rate.

**Hedgers**: If you already hold USD assets, use forward contracts or derivatives to hedge, locking in the appreciation benefits. Remember to set stop-loss points and operate with low leverage.

**Long-term investors**: Taiwan’s economic fundamentals are solid, with strong semiconductor exports. The NT dollar may oscillate between 30 and 30.5. For long-term investments, keep FX positions within 5–10% of total assets, diversify remaining funds into other global assets (like Taiwan stocks, bonds, etc.) to reduce risk.

## Conclusion: The "30 yuan mark" in most people's minds

Looking back over ten years, a consensus has formed: consider buying USD below 30, and sell above 32. This "psychological 30 yuan" level has become a key reference point for many investors.

Although the Taiwan dollar has recently appreciated rapidly, from a longer-term perspective, the US dollar’s future will still be influenced by Fed policies. The core drivers of NT dollar appreciation—central bank intervention limits and extreme market sentiment—will eventually be corrected by market mechanisms.

Rather than blindly chasing highs, it’s better to rationally assess your risk tolerance, set stop-loss points, and participate with appropriate leverage. Remember, controlling risks is always more important than pursuing returns.