NT$29.59 sets a new high! A ten-year trend analysis of USD to TWD exchange rate and future investment opportunities

Recently, the New Taiwan Dollar (NTD) has performed astonishingly, rising over 10% in just two trading days. During the session, it even broke through the psychological barrier of 30 yuan, reaching a low of 29.59 yuan. This intense volatility not only set the record for the largest single-day gain in 40 years but also reignited market concerns about the exchange rate trend. Faced with such dramatic fluctuations, investors inevitably ask: Will the NTD continue to appreciate? What is the reasonable value of USD/NTD? This article will analyze the background, influencing factors, and potential future trends of this exchange rate movement from multiple perspectives.

From Worry of Depreciation to Appreciation Frenzy: The Dramatic Turn of the NTD Exchange Rate

In just one month, market sentiment has undergone a 180-degree shift. At the beginning of the month, there was concern that the NTD might depreciate to 34 or even 35 yuan, but a series of policy changes in May completely reversed this expectation.

According to market data, on May 2, the USD/NTD exchange rate hit its largest single-day increase in 40 years, soaring 5% and closing at 31.064 yuan, a 15-month high. Subsequently, on May 5, the rate continued to rise by 4.92%, breaking the important 30-yuan level, with intraday touching 29.59 yuan. In just two trading days, the NTD appreciated nearly 10%, and foreign exchange market trading volume reached the third-largest in history.

Compared to regional currencies, although they also appreciated during the same period, their gains were significantly smaller. The Singapore dollar rose 1.41%, the Japanese yen 1.5%, and the Korean won 3.8%, all far below the NTD’s increase. This stark difference has underlying structural reasons.

Three Major Drivers Resonating in Unison: A Complete Interpretation of the NTD Appreciation

Strong Policy Expectations as a Major Driver

The U.S. government’s announced tariff policies became a key trigger for this rally. When news broke that tariffs would be delayed by 90 days, two major expectations formed: global buyers might concentrate procurement from Taiwan to avoid tariffs, and Taiwan’s economic resilience was supported by the IMF’s upward revision of forecasts. These positive news boosted foreign capital demand for the NTD, becoming the main driver of the rapid exchange rate rise.

The Central Bank’s Policy Dilemma and Market Expectations

The central bank’s response to recent exchange rate movements has been relatively cautious. In an emergency statement on May 2, the central bank attributed the volatility to market expectations that “the U.S. might require trading partners’ currencies to appreciate.” However, the more pressing concern—whether US-Taiwan negotiations involve exchange rate clauses—was not directly addressed.

In fact, the U.S. government’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a review focus, raising concerns that the central bank may find it difficult to intervene strongly in the foreign exchange market as in the past. Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-on-year, with a US trade surplus surging 134% to $22.09 billion. Without the central bank’s protection, the NTD indeed faces substantial appreciation pressure.

Financial Institutions’ Hedging Amplifies Volatility

UBS’s latest research indicates that a 5% single-day increase far exceeds what traditional economic indicators can explain. Besides market sentiment, large-scale hedging by Taiwanese insurers and exporters, along with concentrated unwinding of NTD financing arbitrage, contributed to this movement. UBS warns that if foreign exchange hedging scales return to trend levels, it could trigger about $100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP.

The Financial Times of the UK pointed out that Taiwanese life insurers hold $1.7 trillion in overseas assets but lack sufficient hedging. Under the central bank’s dilemma, they hurriedly intervene. Although the central bank governor later denied this assessment, it reflects structural vulnerabilities in Taiwan’s financial system.

Multi-Dimensional Evaluation of Exchange Rate Rationality

Measuring Overvaluation and Undervaluation with BIS Index

A key tool for assessing whether an exchange rate is reasonable is the real effective exchange rate index (REER) compiled by the Bank for International Settlements (BIS), with 100 as the equilibrium value. As of the end of March, data shows:

The US dollar index is about 113, indicating a significant overvaluation; the NTD index remains around 96, in a reasonably undervalued state. This suggests that under the REER framework, the NTD still has room to appreciate, while the USD is relatively expensive.

In comparison, major Asian export currencies are more notably undervalued. The Japanese yen index is only 73, and the Korean won 89, facing even greater upward pressure.

( Cross-Regional Comparison with Asian Currencies

Extending the observation period from recent abnormal fluctuations to the beginning of the year reveals that the appreciation of these currencies is actually similar: NTD +8.74%, JPY +8.47%, KRW +7.17%. Although the NTD has appreciated rapidly recently, from a long-term perspective, its trend aligns with regional currencies.

This finding offers an important insight: the NTD’s appreciation is not an isolated phenomenon but part of regional currency revaluation.

The US Dollar’s Decade-Average and Long-Term Trend

Reviewing the past decade’s exchange rate movements, USD/NTD has oscillated between 27 and 34, with a volatility of about 23%. This fluctuation is relatively mild compared to global currencies. In contrast, USD/JPY has ranged from 99 to 161, with a 50% volatility, twice that of the NTD.

Over ten years, the USD/NTD trend has been mainly driven by Federal Reserve policies. After the 2008 financial crisis, the Fed launched three rounds of quantitative easing (QE). In December 2013, the Fed announced tapering QE, leading to capital returning to the U.S. and USD/NTD rising to around 33.

Following the COVID-19 pandemic outbreak in 2020, the Fed expanded its balance sheet from $4.5 trillion to $9 trillion and lowered interest rates to zero. Under this scenario, the USD depreciated sharply, and the NTD hit a historical high of 27 per USD.

After 2022, U.S. inflation spiraled out of control, prompting the Fed to rapidly raise interest rates, causing the USD to rebound and the exchange rate to climb back to around 32. It was only in September 2024, when the Fed ended its rate hike cycle and started cutting rates, that the rate returned to near 32.

From a ten-year average perspective, USD/NTD has generally operated between 30 and 31, with market consensus considering below 30 as a buy zone and above 32 as a sell zone.

UBS’s Outlook on Future Trends

Despite the recent sharp appreciation of the NTD, UBS believes the upward trend will continue. First, valuation models show the NTD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; second, the foreign exchange derivatives market indicates the “strongest appreciation expectation in five years”; third, historical experience suggests that such large single-day gains are unlikely to immediately reverse.

UBS advises investors not to prematurely take contrarian positions, but expects that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth fluctuations. The 28 yuan level is considered a short-term difficult barrier.

How Investors Can Seize This Opportunity

) Forex Trading Strategies

For experienced traders, direct short-term trading of USD/TWD on forex platforms can capture daily or intraday fluctuations. If holding USD assets, derivatives like forward contracts can also be used to lock in appreciation gains.

( Beginner-Friendly Approaches

For novice investors, it’s crucial to follow these principles: start with small amounts to test the waters, never add blindly, and maintain proper mindset. Many forex platforms offer demo trading; beginners should test strategies in simulated environments. When choosing platforms, look for low spreads and providers friendly to small investors.

) Long-Term Allocation Strategy

For long-term holdings, Taiwan’s solid economic fundamentals and strong semiconductor exports suggest the NTD will oscillate within 30 to 30.5 yuan. It’s recommended to keep forex exposure at 5%-10% of total assets, with the rest diversified into global assets to reduce risk.

A prudent approach involves using low leverage for USD/TWD trades and setting stop-loss points for protection. Additionally, combining with investments in Taiwanese stocks or bonds can build a balanced portfolio, helping to maintain overall risk control despite exchange rate volatility. Continuous monitoring of the central bank’s actions and US-Taiwan trade negotiations is essential, as these factors will directly influence future trends.