New Taiwan Dollar breaks the psychological barrier of 30! Comprehensive analysis of the implications of the US dollar's appreciation and the future trend of the Taiwan Dollar

The TWD Short-Term Surge: From Depreciation Expectations to a Surprising Appreciation Turnaround

Remember a month ago, the market was shrouded in gloom over a sharp decline in Taiwan stocks and fears of TWD depreciation, with many investors worried the exchange rate would break below 34 or even 35 NT dollars. However, market sentiment has undergone a dramatic reversal within just 30 days.

In early May, the TWD experienced its most astonishing rally in nearly 40 years, driven by changes in US policies. A single-day 5% appreciation, nearly 10% over just two trading days, and the third-largest trading volume in foreign exchange history—all indicate that this wave of currency fluctuation has transcended normal market operations. The TWD peaked at 29.59 NT dollars, officially breaking the psychologically significant 30 NT dollar level.

Meanwhile, other Asian currencies also strengthened, including the RMB, HKD, JPY, and SGD. However, such a dramatic appreciation of the TWD stands out distinctly within the regional currency market. What economic signals might be hidden behind this abnormal surge?

The Reversal of the US Dollar Appreciation: Three Major Factors Driving the TWD Rally

First Factor: Expectations Shift Triggered by US Tariff Policies

The US government announced a 90-day delay in implementing reciprocal tariff policies. This news acted as a catalyst, sparking a collective shift in market expectations. First, the market speculated that a wave of centralized procurement would sweep the globe. As Taiwan is a major supplier of semiconductors and tech products, its export outlook in the short term looks promising. Second, the International Monetary Fund(IMF) timely upgraded Taiwan’s economic growth forecast, and Taiwan stocks continued their strong performance. These positive news flows continuously boosted foreign investors’ enthusiasm for Taiwanese assets.

Second Factor: The Dilemma Faced by the Central Bank

Official statements attempted to attribute currency fluctuations to market reactions to US dollar policy expectations, but the core issues were deliberately avoided. The US government explicitly listed “currency intervention” as a key focus of trade scrutiny, placing Taiwan’s central bank in an unprecedented policy dilemma: if it intervenes forcefully in the forex market, it risks being accused of currency manipulation; if it does nothing, the upward pressure on the TWD cannot be alleviated.

As a typical export-oriented economy, Taiwan’s net foreign investment accounts for 165% of GDP. In the first quarter, the trade surplus reached USD 23.57 billion, up 23% year-on-year; the US trade surplus surged 134% to USD 22.09 billion. The large trade surplus naturally pushes up the TWD exchange rate in the absence of central bank intervention willingness.

Third Factor: Financial Institutions’ Hedging Operations Creating Resonance

A UBS research report pointed out that large-scale hedging operations by Taiwanese insurers and exporters, along with concentrated closing of TWD financing arbitrage trades, amplified exchange rate volatility. Interestingly, foreign media reports focus on Taiwan’s life insurance industry holding USD 1.7 trillion in overseas assets (mainly US Treasuries), which have long lacked sufficient hedging deployment. Historically, the central bank could effectively suppress TWD appreciation, but under current constraints, insurers are forced to undertake hedging themselves, inadvertently increasing dollar selling pressure.

Analysis of the US Dollar Appreciation and the Equilibrium Point of the TWD Exchange Rate

To accurately assess the future trend of the TWD, multiple dimensions need to be considered:

Quantitative Indicators of Fair Valuation

The BIS(Bank for International Settlements) compiled real effective exchange rate (REER) indices(REER) as important references. The index is benchmarked at 100; above 100 indicates overvaluation, below 100 indicates undervaluation. As of the end of March:

• USD REER index is about 113, showing significant overvaluation
• TWD REER index remains around 96, in a reasonably undervalued range
• JPY and KRW indices are 73 and 89 respectively, with more severe undervaluation

Horizontal Comparison of Regional Currencies’ Gains

Extending the observation period from recent abnormal fluctuations to since the beginning of the year reveals that the cumulative appreciation of the TWD is roughly in sync with major regional currencies:

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

This indicates that the TWD’s appreciation is not isolated but part of a regional currency appreciation trend.

UBS’s Appreciation Expectations

Multiple indicators suggest the TWD’s appreciation trend will continue. Valuation models show the TWD has shifted from moderate undervaluation to a fair value that exceeds it by 2.7 standard deviations; FX derivatives markets reflect the “strongest appreciation expectation in five years”; historical experience indicates that such large single-day increases are unlikely to reverse immediately.

Most industry opinions believe that the possibility of the TWD reaching 28 NT dollars is minimal, but if the trade-weighted index rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify.

Historical Context of the TWD Exchange Rate: Fluctuation Patterns Over the Past Decade

Looking at the past ten years (October 2014 to October 2024), the TWD/USD exchange rate has oscillated between 27 and 34 NT dollars, with a volatility of about 23%, remaining relatively stable among major global currencies. In contrast, the JPY’s fluctuation range is as high as 50% (from 99 to 161), far exceeding that of the TWD.

The TWD’s exchange rate movement is mainly driven by US Federal Reserve policies rather than Taiwan’s central bank:

• 2015–2018: Global economic slowdown, the US slowed its balance sheet reduction and launched a new round of quantitative easing, leading to a strengthening TWD.
• 2018–2020: US rate hike cycle, US dollar appreciated; after the pandemic outbreak in 2020, the Fed’s balance sheet surged from USD 4.5 trillion to USD 9 trillion, rates fell to zero, and the TWD soared to 27.
• 2022–2024: US inflation spiraled out of control, prompting the Fed to raise interest rates sharply, strengthening the dollar again, bringing the exchange rate back to around 32.

Investment Advice: How to Profit from Exchange Rate Fluctuations

For Experienced Forex Traders

You can use forex platforms to trade USD/TWD or related currency pairs for short-term gains, capturing intraday or multi-day volatility opportunities. If you hold USD assets, you can also lock in appreciation gains using forward contracts and other derivatives.

For Forex Beginners

Avoid blindly following short-term trends. Start with small amounts to test your trading strategies. Many platforms offer demo accounts to familiarize yourself with market operations without risking real money. Remember to: set strict stop-loss points, control individual trade risks, and avoid over-leveraging.

For Long-Term Investors

Taiwan’s economic fundamentals remain solid, with semiconductor exports continuing to be strong. The TWD may oscillate long-term between 30 and 30.5 NT dollars. Forex exposure should be limited to 5–10% of total assets; the rest should be diversified into global stocks, bonds, and other assets to reduce overall portfolio volatility.

Use low leverage for USD/TWD trades, and closely monitor Taiwan’s central bank policies and US-Taiwan trade negotiations, as these will directly influence exchange rate movements. Combining this with investments in Taiwanese stocks or bonds can create a more balanced portfolio.

Conclusion: 30 NT Dollars Is a Reality, but Future Variables Remain

Breaking the psychological barrier of 30 NT dollars is now a fact, but is this the end or a new beginning? Based on the reversal of US dollar appreciation and the optimistic outlook of multiple indicators, the TWD still has room to appreciate in the short term. However, shifts in central bank policies, US-Taiwan negotiations, and global economic conditions could rewrite this story’s ending.

Investors need rational judgment rather than blind followings, cautious decisions rather than impulsive actions. Finding certainty in risk management amid uncertainty is the correct attitude toward currency fluctuations.