After the NT$ breaks through the 30 mark... Will the US dollar fall further? An in-depth analysis of the 2025 exchange rate trend

The New Taiwan Dollar has recently staged the most intense appreciation show in 40 years. In just two trading days in early May, the TWD against the USD surged nearly 10%, breaking the psychological barrier of 30 yuan, with a high of 29.59 yuan, hitting a 15-month high. What hidden factors are behind this dramatic volatility? Will the US dollar continue to fall? How should investors respond?

From Panic to Celebration: The Three Deep Drivers of TWD Appreciation

Trigger Point for the Market Sentiment Reversal

Looking back a month, the market was still worried that the TWD would break below 34 or even 35 yuan. The turning point came when U.S. President Trump announced a 90-day delay in implementing the reciprocal tariff policy. This news instantly ignited two expectations:

First, global buyers, aiming to avoid tariffs, might concentrate procurement from Taiwan, benefiting Taiwanese exports and providing strong support for the TWD. Second, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with stellar performance of the Taiwan stock market, attracting a large influx of foreign capital. Fueled by this optimistic sentiment, the new TWD against the USD surged 5% in a single day on May 2, setting a 40-year single-day appreciation record.

Invisible Constraints of Central Bank Policies

More worth noting is the delicate dilemma faced by the central bank. When the TWD started to soar, the central bank issued emergency statements but deliberately avoided addressing a key issue—whether the exchange rate terms are involved in U.S.-Taiwan negotiations.

There are deep considerations behind this silence. The Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a review focus. Under the context of U.S.-Taiwan negotiations, the central bank’s past aggressive interventions in the forex market might be constrained. It’s important to note that Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, up 23% year-on-year, with the U.S. surplus soaring 134% to USD 22.09 billion. Losing the “invisible hand” of the central bank, the pressure for TWD appreciation is indeed substantial.

Financial Institutions’ “Panic Operations” Amplify Volatility

UBS’s latest research indicates that this abnormal volatility exceeds what traditional economic indicators can explain. The real drivers are large-scale forex hedging operations by Taiwanese insurers and export companies, as well as concentrated closing of TWD financing arbitrage trades.

A key risk here: Taiwanese life insurers hold up to USD 1.7 trillion in overseas assets (mainly U.S. Treasuries). In the past, they relied on the central bank’s effective suppression of TWD appreciation, but now face “policy squeeze”—needing to hedge USD assets while worrying about central bank intervention. If foreign exchange hedging scales revert to trend levels, it could trigger about USD 100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP. This potential impact cannot be ignored.

Will the USD Fall Again? Future Trends from Multiple Perspectives

Valuation: Signs of Overvaluation in the TWD

Using the BIS’s real effective exchange rate index(REER) for assessment:

As of the end of March, the USD index was around 113, showing a clear “overvaluation,” while the TWD index remained around 96, considered “reasonably undervalued.” In comparison, major Asian export currencies are more undervalued—JPY at 73, KRW at 89.

UBS’s valuation model shows that the TWD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher, indicating limited room for further appreciation.

Policy Perspective: 28 Yuan Is Almost Impossible

Most industry insiders believe that it’s highly unlikely for the TWD to reach 28 yuan. 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 to smooth out exchange rate fluctuations. In other words, the policy bottom line is subtly emerging.

Market Outlook: Expectations of Continued Appreciation Remain Strong

The FX derivatives market shows the “strongest appreciation expectation in five years,” and historical experience suggests that after similar large single-day jumps, immediate retracement is unlikely. This means that while the USD may weaken in the short term, the scope for further appreciation is relatively limited.

Regional Comparison: Everyone Is Appreciating

Looking at the period from the beginning of the year to now:

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

The appreciation of the TWD is synchronized with regional currencies, not an isolated phenomenon. This indicates that the entire Asian currency region faces upward pressure, rather than the TWD alone.

How Should Investors Seize This Opportunity?

For Experienced Traders

You can directly trade USD/TWD and other currency pairs in the forex market to capture intraday or short-term volatility. If you hold USD assets, you can also use derivatives like forward contracts to hedge and lock in appreciation gains.

For New Investors

Be sure to follow some principles: start with small amounts, avoid impulsive leverage increases, and prioritize mental discipline over trading skills. It’s recommended to practice on demo accounts first to test strategies. When trading short-term, use low leverage and always set stop-loss points to protect yourself.

For Long-term Portfolio Holders

Taiwan’s economy remains solid, with strong semiconductor exports. The TWD may oscillate in the 30 to 30.5 range for the long term, remaining relatively strong. However, it’s advisable to keep forex exposure within 5%-10% of total assets, with the rest diversified into global stocks, bonds, and other assets to effectively manage risk.

Key Indicators to Watch

Always monitor the central bank’s policy moves and the latest developments in U.S.-Taiwan trade negotiations, as these will directly influence the exchange rate. Don’t bet everything on forex alone; combining it with investments in Taiwanese stocks or bonds is more prudent.

A Decade in Review: Understanding the Long-term Logic of the TWD Exchange Rate

Historical Volatility Range Over the Past Decade

From October 2014 to October 2024, the TWD/USD exchange rate has fluctuated between 27 and 34, a 23% range, with relatively moderate volatility compared to global currencies. For comparison, the JPY experienced a 50% fluctuation (99 to 161 USD/JPY), indicating Taiwan’s relative stability.

The Real Decider Is the U.S.

The movement of the TWD mainly depends on Federal Reserve policies, not Taiwan’s central bank. During 2015–2018, amid global stock crashes and European debt crises, the Fed slowed its balance sheet reduction and adopted easing measures, strengthening the TWD. After 2018, as the Fed raised interest rates and shrank its balance sheet, the TWD faced downward pressure.

In 2020, with the pandemic, the Fed’s assets ballooned from USD 4.5 trillion to USD 9 trillion, interest rates fell to zero, and the USD depreciated, pushing the TWD to a historic low of 27 per USD.

Post-2022, U.S. inflation spiraled out of control, prompting aggressive rate hikes by the Fed, which reversed the USD’s decline. It wasn’t until September 2024, when the Fed ended its rate hike cycle and started cutting, that the exchange rate retreated toward 32.

Market’s Implicit Consensus

Despite technical volatility, a “majority’s yardstick” exists—around the 30 yuan mark. Most investors see below 30 USD/JPY as a buy point, above 32 as a sell point. For long-term currency allocation, this can serve as a reference range.

Conclusion

The recent appreciation of the TWD reflects both fundamental economic strength (strong exports, expanding trade surplus) and market sentiment swings, along with financial institutions’ hedging activities. Whether the USD will fall again depends on three major variables: progress in U.S.-Taiwan trade negotiations, Fed’s policy direction, and actual central bank interventions.

In the short term, the TWD may still face upward pressure, but it’s almost impossible to go below 28 yuan; medium-term, 30 yuan will be a key support level; long-term, the trend of the TWD ultimately follows the global dollar strength cycle. Investors should consider their risk tolerance and investment horizon, flexibly positioning within the 30–32 yuan range, rather than trying to precisely predict short-term fluctuations.