New Taiwan Dollar rapidly hits the 30th milestone! Latest 2025 forecast for USD exchange rate trend

The New Taiwan Dollar has recently staged a thrilling appreciation rally. In just two trading days, the USD/TWD exchange rate dropped nearly 10%, with the TWD soaring from above 34 to 29.59, creating the largest single-day gain in 40 years and also hitting a 15-month high. This intense volatility has not only shocked the foreign exchange market but also sparked widespread discussions about future exchange rate trends. Will the TWD continue to appreciate? How much room is there for further upward movement?

Three Drivers Behind the TWD Appreciation

Chain reaction triggered by financial institutions’ hedging operations

According to analyses from multiple investment banks, this rapid rise of the TWD conceals structural risks within the financial system. Taiwan’s life insurance industry holds up to US$1.7 trillion in overseas assets (mainly U.S. Treasuries), yet has long lacked effective currency hedging mechanisms. Historically, these institutions relied on the central bank’s suppression of TWD appreciation, but the situation has now changed. As the central bank faces international policy pressures, financial institutions have increased hedging efforts, leading to concentrated USD selling operations. UBS research indicates that restoring foreign exchange hedging to trend levels could trigger about US$100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP.

Market expectations from U.S. tariff policy releases

The Trump administration’s adjustments to tariff policies have become a catalyst for this appreciation. The announcement of a 90-day delay in implementing reciprocal tariffs has led markets to anticipate a wave of global procurement, with Taiwan, as a typical export-oriented economy, expected to benefit in the short term. Meanwhile, the International Monetary Fund (IMF) unexpectedly raised Taiwan’s economic growth forecast, and Taiwan’s stock market performed strongly. These positive signals have attracted a flood of foreign capital, providing robust support for the New Taiwan Dollar.

Objective constraints on the central bank’s policy space

In the sensitive context of U.S.-Taiwan trade negotiations, the central bank faces unprecedented dilemmas. The U.S. government’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a key review point, making it difficult for the central bank to intervene forcefully as in the past. Taiwan’s trade surplus in the first quarter reached US$23.57 billion, up 23% year-on-year, with the U.S. surplus surging 134% to US$22.09 billion. Without appropriate intervention by the central bank, the upward pressure on the TWD is indeed substantial.

USD Exchange Rate Outlook for 2025

Reasonable valuation: assessing the equilibrium level via the REER index

A key indicator for whether the exchange rate is overvalued is the Real Effective Exchange Rate (REER) index compiled by the Bank for International Settlements (BIS). The index uses 100 as the equilibrium point; above 100 suggests potential overvaluation, below 100 indicates undervaluation risk.

As of the first quarter, BIS data shows interesting contrasts:

• USD Index around 113 → clearly overvalued
• TWD Index around 96 → reasonably undervalued
• JPY Index only 73 → most significantly undervalued among major Asian export currencies
• KRW Index at 89 → also in the undervalued zone

This indicates that even though the TWD has recently appreciated sharply, there is still room for further adjustment from a long-term equilibrium perspective.

( Limited appreciation space: difficulty breaking through 28

While markets expect the Trump administration to pressure the TWD to continue appreciating, the exact magnitude remains hard to predict. Industry consensus suggests that the possibility of the TWD reaching 28 per USD is very low. A more pragmatic expectation is that the TWD may fluctuate between 30 and 30.5, reflecting market awareness of the central bank’s tolerance limits.

UBS’s latest report issues an important warning: when the trade-weighted TWD index rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth volatility.

) Regional comparison: TWD’s trend relative to peers

Extending the observation period from the recent abnormal one-month volatility to the period from the beginning of the year to now, the performance of the TWD aligns closely with regional currencies:

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

This reflects a common backdrop of appreciation pressure faced by Asian export currencies. Although the TWD has appreciated rapidly recently, from a longer-term perspective, its trend remains consistent with regional performance.

A Decade in Review: Historical Context of USD Exchange Rate Forecasts

Over the past decade (October 2014 to October 2024), the USD/TWD exchange rate has fluctuated between 27 and 34, with about 23% volatility, making it relatively stable compared to global currencies. In contrast, the JPY/USD volatility reached 50% (rates between 99 and 161), twice that of the TWD.

The long-term movement of the TWD is primarily determined by the Federal Reserve’s policy stance, rather than Taiwan’s central bank. Specifically:

2015 to mid-2018: China stock market crash and European debt crisis led the Fed to slow its balance sheet reduction and continue quantitative easing, strengthening the TWD.

Post-2018: The Fed began raising interest rates to maintain a high-yield environment and shrink its balance sheet, slowing the TWD’s appreciation.

2020 to 2022: Pandemic shocks caused the Fed’s balance sheet to expand from US$4.5 trillion to US$9 trillion, with near-zero interest rates, leading to USD depreciation and the TWD breaking through 27.

After 2022: U.S. inflation spiraled out of control, prompting the Fed to rapidly hike interest rates, reversing USD appreciation, and the TWD depreciated toward 32.

September 2024: The Fed ended its high-rate cycle and began cutting rates, leading to a resurgence of the TWD, with the exchange rate returning to around 32.

This decade of fluctuations illustrates that the long-term rhythm of the TWD is driven by global liquidity conditions, while short-term movements are influenced by market psychology and policy expectations.

Investment Strategies to Capture TWD Appreciation Opportunities

( For forex traders

If you have some experience in forex trading and a higher risk tolerance, you can consider the following strategies:

Short-term trading: Engage in intraday or multi-day swing trading of USD/TWD or related currency pairs to seize recent high-volatility opportunities.

Forward hedging: If you hold USD assets, use forward contracts or other derivatives to lock in gains from TWD appreciation and hedge against opportunity costs from further appreciation.

) For novice investors

For those new to the forex market wanting to participate in recent volatility, keep in mind these principles:

Start small: Use limited capital to test your trading strategies, assess feasibility, and understand your risk appetite. Many platforms offer demo accounts—practice first.

Be cautious with leverage: Avoid impulsively increasing positions due to short-term gains; a loss of control can wipe out your capital. Use low leverage and set clear stop-loss points.

Monitor continuously: Keep a close eye on Taiwan’s central bank actions and the latest U.S.-Taiwan trade negotiations, as these will directly impact exchange rate movements.

For long-term asset allocators

Taiwan’s economic fundamentals remain solid, with robust semiconductor exports. The TWD is relatively strong in the medium term, but long-term investment should adopt a more cautious approach:

Moderate exposure: Keep forex positions within 5%-10% of total assets. Diversify remaining funds into Taiwan stocks, bonds, and global assets to balance overall risk.

Strategy selection: To earn steady forex gains, consider low-leverage USD/TWD trading combined with stop-loss setups.

Portfolio optimization: Integrate currency investments with Taiwan stocks or government bonds. Even if individual assets fluctuate, the overall risk of your portfolio can be effectively managed.

A common market adage is the “measure in most people’s minds”: buy when 1 USD is below 30 TWD, sell when above 32 TWD. While not an absolute rule, it reflects a market consensus on the long-term equilibrium price.