NT$30 barrier has been broken! Will the US dollar continue to rise against the New Taiwan dollar? A comprehensive analysis of the 2025 exchange rate trend

Rapid surge of nearly 10% in just two trading days! How far can the NT dollar’s rally go?

Recently, the foreign exchange market has been turbulent. The New Taiwan dollar (NTD) against the US dollar has appreciated nearly 10% in just two trading days, with a single-day increase of up to 5% on May 2nd, creating the largest single-day surge in 40 years. That day closed at 31.064 yuan, then quickly broke the psychological barrier of 30 yuan, reaching a high of 29.59 yuan.

This appreciation is unprecedented among Asian currencies. During the same period, the Singapore dollar rose 1.41%, the Japanese yen gained 1.5%, and the Korean won surged 3.8%, but none matched the dramatic rise of the NT dollar. The foreign exchange market even experienced the third-largest trading volume in history, indicating how excited market sentiment is.

Notably, this surge marks a complete reversal of market sentiment. Just a month ago, there were concerns that the NT dollar might break below 34 or even 35 yuan. Yet, in just 30 days, the situation has completely changed, forming a bullish pattern.

The three main drivers behind the US dollar’s bullish outlook

Step 1: US tariff policies ignite market expectations

The Trump administration announced a 90-day delay in implementing reciprocal tariffs, which immediately triggered dual market expectations:

First, a wave of centralized procurement emerged globally. As a typical export-oriented economy, Taiwan responded sensitively to this, supporting its export prospects. Second, the International Monetary Fund unexpectedly raised Taiwan’s annual economic growth forecast, coupled with impressive performance in the Taiwan stock market, attracting continuous foreign investment inflows.

The central bank faces a delicate policy dilemma

On the day the NT dollar surged sharply, the central bank issued a statement but remained vague on key issues. Officially, the exchange rate volatility was attributed to “market expectations that trade partners may demand currency appreciation,” but there was no direct response regarding whether US-Taiwan negotiations involved exchange rate clauses.

UBS’s analysis points more directly to the core: the Trump administration’s “Fair and Reciprocal Plan” explicitly emphasizes “currency intervention” as a review focus. This significantly narrows the space for the central bank’s past strong interventions in the forex market.

Data supports the reasonableness of these concerns. Taiwan’s trade surplus in the first quarter reached USD 23.57 billion (up 23% year-on-year), with the US trade surplus soaring 134% to USD 22.09 billion. Without the central bank’s regulation, the upward pressure on the NT dollar would indeed be enormous.

The third factor: financial institutions’ hedging operations amplify volatility

UBS’s latest research indicates that a 5% single-day surge exceeds what traditional economic indicators can explain. The real drivers are large-scale currency hedging operations by Taiwanese insurers and exporters, along with concentrated closing of NT dollar financing arbitrage trades.

A survey by the Financial Times (UK) points more towards Taiwan’s life insurance industry. These institutions hold overseas assets worth up to USD 1.7 trillion (mainly US Treasuries) but have long lacked sufficient currency hedging. The reason is that “in the past, the central bank could effectively suppress NT dollar appreciation,” but that assumption has now changed.

UBS warns that if foreign exchange hedging/deposits return to trend levels, it could trigger about USD 100 billion in dollar selling pressure (equivalent to 14% of Taiwan’s GDP), representing a significant potential risk.

Will the NT dollar continue to rise? Where is the ceiling?

The 28 yuan level is extremely difficult

Market consensus expects the US dollar to remain strong, putting continued upward pressure on the NT dollar. However, most professionals believe that the possibility of the NT dollar reaching 28 yuan per USD is very low. This level is relatively well defended.

Using REER index to assess fair exchange rate

The Bank for International Settlements (BIS) compiles the Real Effective Exchange Rate (REER) index, an important tool for evaluating exchange rate fairness. The index uses 100 as a baseline; above 100 indicates overvaluation, below 100 suggests undervaluation.

As of the end of March:

• US dollar index is about 113 → clearly overvalued
• NT dollar index remains around 96 → fairly undervalued

The situation of major Asian export countries is even more intriguing. The yen and won indices are only 73 and 89 respectively, indicating more obvious undervaluation.

( From an annual perspective, the appreciation is within a reasonable range

If we extend the observation period from recent abnormal fluctuations to the current year, the cumulative appreciation of the NT dollar against the USD is roughly comparable to other major Asian currencies:

• NT dollar up 8.74%
• Japanese yen up 8.47%
• Korean won up 7.17%

This shows that although the recent rise of the NT dollar appears astonishing, over a broader timeframe, its performance remains within the regional currency trend.

) UBS forecast: room for further appreciation, but with a ceiling

UBS’s latest assessment suggests that despite the fierce rally, the upward trend of the NT dollar will continue based on multiple factors:

Valuation models show the NT dollar has shifted from moderate undervaluation to a fair value exceeding the mean by 2.7 standard deviations; foreign exchange derivatives market reflects the “strongest appreciation expectation in five years”; historical experience indicates that similar large single-day surges usually do not immediately reverse.

However, UBS also warns that if the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention efforts to smooth volatility.

How can investors seize this opportunity?

( Strategies for advanced traders

If you have some experience in forex trading and a higher risk appetite, consider two approaches:

First, directly trade USD/TWD or related currency pairs on forex platforms to capture short-term fluctuations over days or even within the same day. Second, if you already hold USD assets, hedge via derivatives like forward contracts to lock in gains from NT dollar appreciation in advance.

) Tips for beginners

For investors with limited experience who want to participate in recent volatility, keep these principles in mind:

First, start small. Don’t go all-in immediately; test your understanding of the market and trading skills with small capital.

Second, firmly avoid chasing highs. Forex market volatility can trigger emotional reactions; losing composure can lead to total loss. Use beginner-friendly trading platforms that offer demo accounts to practice strategies risk-free.

Third, always set stop-loss orders. This is the last line of defense to protect your principal.

Long-term investment allocation suggestions

Taiwan’s economic fundamentals are solid, with robust semiconductor exports. The NT dollar may fluctuate within the 30 to 30.5 yuan range, with a relatively strong long-term trend. But long-term investors should remember:

Keep forex positions within 5%-10% of total assets. Diversify remaining funds into other global assets to effectively reduce risk concentration. Use low leverage for USD/TWD trades, combined with stable stop-loss mechanisms.

Also, closely monitor the actions of the Taiwan central bank and developments in US-Taiwan trade, as these will directly influence the exchange rate trajectory. Consider pairing forex investments with Taiwan stocks or bonds to make the overall portfolio’s risk more manageable.

Reviewing the decade-long exchange rate trend: the NT dollar’s volatility is actually quite mild

Over the past ten years (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34 yuan, with an amplitude of about 23%, making it relatively less volatile among major global currencies.

In comparison, the USD/JPY has a volatility of up to 50% (range 99–161), twice that of the NT dollar. The low volatility of the NT dollar reflects its smaller interest rate swings, meaning its rise and fall are mainly influenced by US Federal Reserve policies rather than Taiwan’s central bank.

Policy cycles and exchange rate correlation

From 2015 to 2018, China’s stock market crash and European debt crisis impacted the global economy. The US slowed its quantitative tightening (QT) and continued easing, leading to a strengthening of the NT dollar. After 2018, the US believed its economy could withstand rate hikes, aiming to maintain high interest rates and shrink its balance sheet, but the COVID-19 pandemic suddenly struck in 2020.

From 2020 to 2022, the Fed expanded its balance sheet from USD 4.5 trillion to USD 9 trillion, with rates dropping to zero. In this context, the USD depreciated, and the NT dollar surged to a high of 27 per USD.

After 2022, US inflation spiraled out of control, prompting the Fed to hike rates rapidly, causing the dollar to rebound. The NT dollar retreated and stabilized around 32. It wasn’t until September 2024, when the Fed ended its rate hike cycle and started cutting rates, that the exchange rate again approached 32.

The market’s “psychological threshold”: 30 yuan

Although exchange rate fluctuations are driven by Fed policies, market participants have a conventional mental benchmark: 30 yuan.

Most investors see the NT dollar as attractive when it can buy less than 30 yuan per USD, and believe that above 32 yuan, it’s time to sell on rallies. This line acts as a psychological support and resistance in actual trading. For those aiming at long-term forex investment, this line is an important reference point.

In a bullish environment for the US dollar, understanding these levels helps you find your own investment rhythm amid volatility.