New Taiwan Dollar hits a record high! USD to TWD (USD/TWD) market analysis and investment strategy insights

The New Taiwan Dollar has recently shown a strong performance, appreciating nearly 10% in just a few trading days, marking a rare multi-decade surge. Faced with this intense exchange rate fluctuation, investors are both excited and confused—Is this a short-term volatility or the beginning of a long-term appreciation trend? This article will analyze the economic factors behind the NT$ appreciation, explore the implications of the USD’s 10-year exchange rate trend for the current market, and provide practical trading strategies for investors with different risk tolerances.

NT$ Appreciation Wave: From Devaluation Panic to Single-Day Highs

Just a month ago, the market was worried that the NT$ might depreciate to 34 or even 35 yuan, but who would have thought that within only 30 days, the situation would turn so dramatically.

According to the latest data, the NT$ against the US dollar surged 5% on May 2, hitting the largest single-day increase in 40 years, closing at 31.064 yuan, a 15-month high. Then on May 5, the NT$ broke the 30 yuan barrier, with intraday highs reaching 29.59 yuan, completely rewriting market expectations.

In just two trading days, the NT$ appreciated nearly 10%, setting multiple historical records and triggering the third-largest trading volume in forex market history. Notably, from the start of the year until April, the NT$ was still in a depreciating trend before President Trump announced tariffs.

Compared to other Asian currencies, the NT$'s appreciation is particularly prominent. The Singapore dollar rose 1.41%, the Japanese yen 1.5%, and the Korean won 3.8%, but the NT$'s appreciation rate clearly surpasses its peers. This reflects Taiwan’s unique position as an export-oriented economy—its net foreign investment accounts for 165% of GDP, making the economy highly sensitive to exchange rate fluctuations.

Three Main Drivers of NT$ Appreciation

Trump Tariff Policies Spark Market Expectations Shift

After the US government announced a 90-day delay in implementing reciprocal tariffs, two main expectations formed:

First, global companies will initiate a procurement surge to avoid tariff pressures. Taiwan, as a key global supply chain hub, is expected to see a significant increase in export orders, providing strong support for the NT$. Second, the International Monetary Fund (IMF) unexpectedly raised Taiwan’s economic growth forecast, coupled with recent stellar performance of the Taiwan stock market, attracting substantial foreign investment, which became the first core driver pushing the NT$ higher.

Central Bank Policy Interpretation

On May 2, the day the NT$ surged sharply, the central bank issued a statement but avoided addressing key issues. It attributed the currency movement to “market expectations that the US may request trading partners to appreciate their currencies,” without directly responding to whether Taiwan-US negotiations involve exchange rate clauses.

The Trump administration’s “Fair and Reciprocal Trade Plan” explicitly targets “currency intervention” as a key review item, raising concerns that the central bank may find it more difficult to intervene effectively in the forex market under the new international environment. Considering Taiwan’s first-quarter trade surplus reached 23.57 billion USD (YoY growth 23%), with the US trade surplus soaring 134% to 22.09 billion USD, if the central bank’s intervention is weakened, the NT$ faces substantial appreciation pressure.

Financial Institutions’ Defensive Hedging Operations

According to UBS’s latest research report, the abnormal volatility on May 2 exceeded the scope of traditional economic indicators. Besides market sentiment, large-scale FX hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of NT$ financing arbitrage trades, jointly drove this currency movement.

UBS specifically warns that when the NT$ retraces, insurers and exporters may further increase hedging ratios. Restoring FX hedges and deposit scales to trend levels could lead to about 100 billion USD in dollar selling pressure (equivalent to 14% of Taiwan’s GDP), a risk investors should monitor closely.

Future Outlook for the NT$

Reasonable Valuation of Appreciation Potential

Currently, the market generally expects Trump to continue pressuring the NT$ to appreciate, but the specific magnitude remains uncertain. Most industry insiders believe that the possibility of the NT$ reaching 28 yuan is very low.

Using the Bank for International Settlements (BIS) compiled real effective exchange rate index (REER) to assess currency valuation, with 100 as the equilibrium level. As of the end of March, the USD REER was about 113 (overvalued), while the NT$ REER was around 96 (reasonably undervalued). In comparison, the JPY and KRW indices are only 73 and 89 respectively, indicating that many Asian export currencies are generally undervalued.

Short-term vs. Medium-term Performance Perspective

If we extend the observation period from the recent abnormal one-month fluctuation to since the beginning of the year, we find that the appreciation of the NT$ aligns closely with regional currencies: NT$ +8.74%, JPY +8.47%, KRW +7.17%. Although the recent appreciation has been rapid, from a longer-term perspective, its trend remains consistent with the overall Asian market.

UBS Forecasts and Risk Warnings

UBS research indicates that the NT$ appreciation trend is expected to continue. Valuation models show the NT$ has shifted from moderate undervaluation to a level 2.7 standard deviations above fair value; FX derivatives markets reflect the “strongest appreciation expectation in five years”; historical experience suggests that after such large single-day gains, immediate retracement is unlikely.

UBS advises investors not to prematurely reverse positions, but when the trade-weighted index of the NT$ rises another 3% and approaches the central bank’s tolerance limit (, official intervention may intensify to smooth volatility.

USD 10-Year Exchange Rate Review: A Long-term Reference

Over the past decade )October 2014 to October 2024(, the NT$ against the USD has fluctuated between 27 and 34 yuan, with an amplitude of about 23%. In comparison, the USD/JPY has a volatility of up to 50% )99~161(, twice that of the NT$, indicating relative stability of the NT$.

2015–2018: During periods of increased global financial risk, the US slowed quantitative tightening and resumed easing policies, leading to a strengthening of the NT$.

2018–2020: As the US began a rate hike cycle, the dollar rebounded, and the NT$ faced downward pressure.

2020–2022: Post-pandemic, the Fed adopted aggressive easing, expanding its balance sheet from 4.5 trillion USD to 9 trillion USD, with rates falling to zero, causing the USD to depreciate sharply and the NT$ to rise to around 27.

Post-2022 to Present: US inflation spiraled out of control, prompting the Fed to raise interest rates sharply, strengthening the dollar. The exchange rate hovered around 32, with narrow fluctuations until September 2024, when the Fed started a rate cut cycle, bringing the rate back to around 32.

Key insight: The long-term trend of the NT$ against the USD mainly depends on Fed policies rather than Taiwan’s central bank, as NT$ interest rate changes are small. The market generally perceives a “30 yuan psychological threshold”—below 30, many believe the USD remains attractive; above 32, there is a tendency to sell.

Investment Strategy Recommendations: Trading Plans for Different Risk Levels

) For Experienced Traders

Short-term traders can engage in daily or intra-day volatility trading on USD/TWD or related currency pairs. If holding USD assets, they can lock in appreciation gains and hedge risks through derivatives like forward contracts.

For Beginner Investors

It is recommended to start with small amounts to test the waters, avoiding impulsive increases. Use platforms that offer small-scale trading to practice, and test trading strategies in simulated environments.

Core Principles: Set stop-loss points to protect capital, closely monitor central bank moves and latest US-Taiwan trade developments, and avoid concentrating all investments in a single currency pair. FX positions should be controlled at 5%-10% of total assets, with remaining funds diversified into other global assets to reduce risk.

Long-term Allocation Investors

Taiwan’s economic fundamentals are solid, with strong semiconductor exports. The NT$ is expected to oscillate within the 30–30.5 yuan range long-term, maintaining a relatively strong stance. Using low leverage for USD/NT$ positions, combined with investments in Taiwan stocks or bonds, can help build a balanced portfolio and effectively control overall investment risk.

Overall, although this wave of NT$ appreciation is rapid and sudden, the long-term trend, based on the 10-year USD exchange rate evolution, still depends on Fed policy. Investors should understand the fundamentals and employ flexible short-, medium-, and long-term strategies to seize opportunities amid exchange rate fluctuations.