New Taiwan Dollar breaks through the 30 mark! Against the backdrop of the US dollar's appreciation, what is the future trend of USD/TWD? Interpretation of investment opportunities in 2025

Recently, the New Taiwan Dollar (NTD) against the US dollar has experienced unprecedented large fluctuations in decades. On May 2nd, it surged by 5% in a single day, marking the largest single-day increase in 40 years; on May 5th, it continued to rise by 4.92%, even breaking the psychological barrier of 30 yuan intraday, with a high of 29.59 yuan. In just two trading days, the NTD appreciated nearly 10%, triggering the third-largest trading volume in foreign exchange market history. Under the trend of US dollar appreciation, this abnormal phenomenon of the NTD strengthening in the opposite direction—what is its origin? Will the NTD continue to rise? How should investors seize the opportunity?

Three Main Drivers Behind the NTD Breaking Through 30 Yuan

Trump’s tariff policies became the trigger point

At the beginning of this year until April 2nd, the NTD was still in a depreciation dilemma of about 1%. The turning point came from the Trump administration’s reciprocal tariff policies. When Trump announced delaying the implementation of this policy by 90 days, the market immediately formed two key expectations:

First, a global procurement wave would be triggered. Taiwan, as a typical export-oriented economy with net foreign investment accounting for 165% of GDP, is expected to benefit significantly in the short term, laying a strong foundation for the NTD exchange rate; second, the IMF unexpectedly raised Taiwan’s economic growth forecast, and the Taiwan stock market performed brilliantly. These positive news attracted a frenzy of foreign capital inflows, becoming the initial driving force pushing the NTD higher.

Meanwhile, other Asian currencies also appreciated—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%. However, the extent of the NTD’s extraordinary surge remains unique among regional currencies.

Central bank policies face a dilemma

On May 2nd, the day of the NTD’s single-day surge, the central bank issued an emergency statement but avoided addressing the core market concern. 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 whether the US-Taiwan negotiations involved exchange rate clauses.

This dilemma stems from the Trump administration’s “Fair and Reciprocal Trade Plan,” which explicitly emphasizes “currency intervention” as a key review point. Against the backdrop of US-Taiwan negotiations, the central bank faces constraints—its previous strong intervention tools are now difficult to deploy. This concern is not unfounded: Taiwan’s trade surplus in the first quarter reached US$23.57 billion, up 23% year-on-year; the US trade surplus with Taiwan surged by 134% to US$22.09 billion. Without central bank intervention, the NTD indeed faces enormous upward pressure.

Financial institutions’ hedging operations amplify volatility

UBS’s latest research indicates that the 5% single-day increase on May 2nd has exceeded the scope explained by traditional economic indicators. Besides market sentiment, large-scale currency hedging operations by Taiwanese insurers and exporters, as well as concentrated closing of NTD financing arbitrage trades, jointly caused this abnormal movement.

UBS specifically warns: insurers hold overseas assets totaling up to US$1.7 trillion (mainly US Treasuries) but lack sufficient long-term hedging measures. The reason is that “in the past, the Taiwan central bank could effectively suppress the NTD’s appreciation,” but that protective umbrella no longer exists. UBS estimates that restoring foreign exchange hedging to trend levels could trigger about US$100 billion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP, a risk that warrants close attention.

Subsequently, the central bank governor Yang Jinlong responded, emphasizing that “life insurance companies have not significantly increased operations compared to large exporters.”

From a Data Perspective: Reasonable Valuation of USD/TWD

Valuation indicator: The NTD is approaching overvaluation

An important reference for assessing exchange rate rationality is the real effective exchange rate index (REER) compiled by the Bank for International Settlements (BIS). This index uses 100 as the equilibrium value; above 100 indicates overvaluation, below 100 indicates undervaluation.

As of the end of March:

• US dollar index about 113 → clearly overvalued
• NTD index about 96 → relatively fair or slightly undervalued
• Yen index only 73, Korean won 89 → more pronounced undervaluation among major Asian export currencies

UBS’s valuation model shows that the NTD has shifted from moderate undervaluation to a level 2.7 standard deviations above fair value, meaning the room for further appreciation is diminishing.

Regional comparison: No special significance in the surge

If we extend the observation period to from the beginning of the year to now, the cumulative appreciation of the NTD against the US dollar is roughly in line with regional currencies:

• NTD up 8.74%
• Yen up 8.47%
• Won up 7.17%

The recent sharp appreciation appears vigorous but, from a longer-term perspective, its performance remains consistent with regional trends.

28 Yuan barrier is difficult to break

Most industry insiders believe that the possibility of the NTD reaching 28 per US dollar is very low. UBS expects that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), the authorities may step up intervention to smooth fluctuations. However, the foreign exchange derivatives market shows the “strongest appreciation expectation in five years,” implying that the outlook still has support.

Historical Perspective: Exchange Rate Trends Over the Past Decade

In the past ten years (October 2014 to October 2024), the NTD/USD exchange rate fluctuated between 27 and 34, with a volatility of only 23%, relatively small compared to global currencies. The Japanese yen, as a traditional safe-haven currency, had a volatility of about 50% (ranging from 99 to 161), twice that of the NTD.

The main determinant of the NTD’s rise and fall is the US Federal Reserve, not the Taiwan central bank. Since the central bank’s interest rate adjustments are small, the fluctuations mainly stem from the cycles of US dollar appreciation or depreciation:

2015–2018: During China’s stock market crash and European debt crisis, the Fed slowed its tightening pace and resumed quantitative easing, leading to a strengthening of the NTD.

2018–2020: The Fed initially raised interest rates, but due to the pandemic, it expanded its balance sheet from US$4.5 trillion to US$9 trillion and cut rates to zero, causing the US dollar to depreciate sharply, with the NTD rising to a decade low of 27 per dollar.

2022–present: US inflation spiraled out of control, prompting the Fed to rapidly raise interest rates, appreciating the dollar and reversing the trend. The exchange rate rose back to the 32–34 range. Only after the Fed ended its high-interest cycle and started cutting rates in September 2024 did the exchange rate fall back toward 32.

Market psychological key point: Many investors hold the “30 yuan level”—a USD below 30 is seen as relatively cheap, above 32 should prompt selling.

Strategies for Novice and Experienced Investors

Experienced forex traders: Can trade USD/TWD or related currency pairs directly on forex platforms to capture short-term fluctuations; or use derivatives like forward contracts to lock in the appreciation gains of the NTD.

Beginners: Start with small amounts to test the waters; avoid impulsive increases. Practice with demo accounts to test trading strategies. Use low leverage and set stop-loss points for self-protection. Keep a close eye on Taiwan’s central bank actions and US-Taiwan trade developments, as these will directly influence future trends.

Long-term investors: Taiwan’s economic fundamentals are stable, with strong semiconductor exports, and the NTD may bottom out around 30–30.5 yuan. It is advisable to keep foreign exchange positions within 5–10% of total assets, diversify into global assets to reduce overall risk. Combining with Taiwan stocks or bonds can help maintain portfolio stability amid currency fluctuations.

Summary

The NTD’s counter-trend appreciation amid the US dollar’s strengthening environment reflects Taiwan’s export competitiveness and also exposes structural risks in the financial system. In the short term, the psychological barrier of 30 yuan has been broken, but the appreciation potential below 28 yuan is limited; in the medium term, the central bank’s policy space is constrained, and market sentiment will continue to drive volatility; in the long term, the NTD’s overall appreciation trend aligns with regional currencies, with no obvious abnormality.

Investors should recognize that this wave of fluctuations is not simply about a strong NTD or a crisis of US dollar appreciation, but a structural reassessment under global monetary policy adjustments. Grasp the rhythm, control risks, and diversify allocations—these are the keys to responding effectively.