NTD breaks the psychological barrier of 30! Analyzing the 2025 USD to TWD(USD/TWD) market trends and investment strategies

New Taiwan Dollar Appreciation on the Horizon: Market Logic Behind the Short-Term Surge

Recently, the New Taiwan Dollar (NTD) has performed remarkably well, experiencing fluctuations not seen in nearly a decade within just two trading days. During the early May rally, the daily increase reached as high as 5%, breaking a 40-year record and surpassing the psychological barrier of 30 NT dollars, with a low of 29.59 NT dollars. Such rapid appreciation is unique among Asian currencies, far exceeding the gains of the Japanese Yen, Korean Won, and Chinese Renminbi during the same period.

Looking at the numbers, in just 30 days, the market shifted from concerns about the NTD breaking below 34 NT dollars to expectations of continued appreciation. What exactly has happened behind this shift? Why has the USD/NTD exchange rate experienced such a dramatic turnaround?

Three Major Drivers: Why Is the NTD So Aggressively Appreciating?

Trade Policy Reshaping Expectations

The Trump administration’s adjustments to tariff policies have ignited this rally. When the government announced a 90-day delay in implementing reciprocal tariffs, two forces emerged: first, a surge in global procurement flows toward Taiwan, improving export prospects; second, the International Monetary Fund (IMF) unexpectedly raised Taiwan’s economic growth forecast, boosting the Taiwan stock market. Foreign capital quickly flooded in, becoming the main driver of the NTD’s rise.

Limited Central Bank Policy Space

In early May, the central bank attributed exchange rate volatility to “market expectations of US trade partners’ currencies appreciating,” but did not mention whether Taiwan-US negotiations involved exchange rate clauses. In fact, Trump’s “Fair and Reciprocal Plan” emphasizes scrutinizing currency interventions, placing Taiwan in a dilemma—fear of being labeled a currency manipulator, yet unable to intervene as forcefully as in the past. Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, with a US trade surplus soaring 134% to USD 22.09 billion. Under the circumstances of limited effective intervention by the central bank, the NTD indeed faces significant upward pressure.

Financial Sector Hedging Amplifies Volatility

A UBS research report points out that, beyond market sentiment, large-scale currency hedging by Taiwan’s insurance industry and exporters, along with concentrated unwinding of NTD financing arbitrage trades, have collectively intensified this volatility. Taiwan’s life insurance industry holds up to USD 1.7 trillion in overseas assets (mainly US Treasuries), yet due to long-standing trust in the central bank’s exchange rate stability policy, they lack sufficient hedging. When the central bank faces a dilemma, the concentrated actions of insurers trigger a chain reaction. UBS estimates that just restoring hedging to trend levels could release about USD 100 billion in dollar selling pressure—equivalent to 14% of Taiwan’s GDP.

Will the Appreciation Continue? Assessing the NTD’s Room to Rise

Indicators of Rationality

A key tool to assess whether the exchange rate is excessively appreciated is the BIS’s real effective exchange rate index (REER). As of the end of March, the USD REER index was about 113 (significantly overvalued), while the NTD remained around 96 (reasonably undervalued). In comparison, major Asian export currencies are more undervalued—Yen at 73, Won at 89—indicating the NTD still has some room to appreciate.

Long-Term Perspective on the Range of Gains

If we extend the observation period from the recent abnormal volatility to the start of the year, the NTD has appreciated by 8.74%, the Yen by 8.47%, and the Won by 7.17%. Their gains are actually within a similar range, with no significant difference. In other words, the recent rapid appreciation of the NTD is simply catching up with regional currencies’ overall performance.

Where Is the Official Tolerance Limit?

UBS analysis shows that the NTD has shifted from moderate undervaluation to a level 2.7 standard deviations above its fair value. The foreign exchange derivatives market reflects expectations of the strongest appreciation in five years. Historical experience suggests that large single-day gains are rarely followed by immediate reversals. UBS expects that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), authorities may increase intervention to smooth fluctuations. As for the possibility of the NTD reaching 28 per USD, most industry insiders consider it highly unlikely.

How to Find Investment Opportunities Amidst Volatility?

Short-Term Trading Strategies

For experienced forex traders with high risk tolerance, direct trading of USD/TWD or related currency pairs on forex platforms can capture short-term fluctuations over days or within the same day. Investors holding USD assets might consider forward contracts or other derivatives to lock in appreciation gains.

Risks for Beginners

Newcomers aiming to follow short-term trends should adhere to key principles: start with small capital, avoid impulsive increases, and maintain disciplined risk management. It’s advisable to practice with demo accounts to test trading strategies and set clear stop-loss points to protect capital.

Long-Term Portfolio Recommendations

From a long-term perspective, Taiwan’s solid economic fundamentals and robust semiconductor exports suggest the NTD may oscillate between 30 and 30.5 NT dollars in the medium term, maintaining relative strength. Long-term investors should limit foreign exchange exposure to 5%-10% of total assets, diversifying remaining funds into global equities and bonds to reduce overall risk. It’s recommended to use low leverage when trading USD/TWD and closely monitor central bank actions and US-Taiwan trade negotiations, as these are key variables influencing the exchange rate.

Historical Context: A Decade of Exchange Rate Cycles

Over the past decade (October 2014 to October 2024), the NTD/USD has fluctuated between 27 and 34, with a volatility of about 23%, making it one of the less volatile currencies globally. In contrast, the Yen’s range has been 50% (from 99 to 161), twice that of the NTD.

The logic behind the NTD’s fluctuations is relatively straightforward—mainly driven by the US Federal Reserve’s policy cycle, rather than Taiwan’s central bank. Between 2015 and 2018, influenced by China’s stock market crash and the European debt crisis, the Fed slowed its balance sheet reduction and resumed easing, strengthening the NTD. After 2018, expectations of US rate hikes caused the NTD to weaken. The COVID-19 pandemic in 2020 saw the Fed’s balance sheet surge from USD 4.5 trillion to USD 9 trillion, with rates falling to zero, leading to dollar depreciation and the NTD soaring to a historic low of 27 per USD.

Starting in 2022, US inflation spiraled out of control, prompting the Fed to initiate rapid rate hikes, causing the dollar to rebound and the exchange rate to fluctuate between 27 and 33. It was only after the Fed ended its high-interest cycle and began cutting rates in September 2024 that the NTD regained upward momentum.

Market Psychology of the “30 Yuan Level”

Whether from technical or fundamental perspectives, the market generally regards 30 NT dollars as a psychological threshold for appreciation—the majority of investors are willing to buy USD below 30, and tend to sell above 32. Using this as a long-term reference point for currency trading can help make more rational entry and exit decisions.