New Taiwan Dollar breaks through the 30 mark! Does the meaning of the US dollar appreciation change? 2025 Exchange Rate Trend Analysis

Ten Years of Exchange Rate Volatility: Why Did the TWD Suddenly Surge?

The recent performance of the TWD can be described as a market black swan event. In just two trading days, the New Taiwan Dollar appreciated nearly 10% against the US dollar, creating the largest single-day gain in 40 years. On May 2nd, it surged 5% in one day, followed by another 4.92% increase on May 5th. During intraday trading, it even broke through the psychological barrier of 30 TWD per USD, reaching a high of 29.59.

How intense is this rally? Looking at other Asian currencies during the same period provides perspective: SGD up 1.41%, JPY up 1.5%, KRW up 3.8%. In comparison, the TWD’s appreciation is on a completely different level. The market’s extreme volatility is evident when, within just 30 days, fears of breaking below 35 TWD per USD suddenly reversed into a push above the 30 mark.

The Three Main Drivers Behind the TWD Appreciation

First Layer: Expectations of Trump’s Tariff Negotiations

When President Trump announced a 90-day delay in tariff policies, two forces immediately emerged. One was global buyers rushing to secure goods, benefiting Taiwan’s export-oriented economy; the other was the IMF raising Taiwan’s economic growth forecast, coupled with impressive stock market performance, leading to foreign capital inflows. This capital surge directly pushed up the TWD exchange rate.

It’s worth noting that the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes scrutinizing currency manipulation. This has raised concerns in the market: the traditional currency intervention tools used by the Central Bank may now face pressure from the US, making them harder to deploy.

Second Layer: The Central Bank’s Dilemma

Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-on-year, with the US trade surplus soaring 134% to $22.09 billion. While a large trade surplus would naturally appreciate the TWD, aggressive intervention by the Central Bank risks being labeled a currency manipulator by the US Treasury. This dilemma reflects Taiwan’s structural vulnerability: external net investment accounts for 165% of GDP, making the economy highly sensitive to exchange rate movements.

Third Layer: Financial Institutions’ Hedging and Position Closing

According to UBS’s latest analysis, a single-day appreciation of 5% exceeds what traditional economic indicators can explain. The real drivers are Taiwanese insurance companies and export firms engaging in concentrated USD hedging operations, along with a wave of closing out TWD financing arbitrage trades.

The most startling data is that Taiwanese life insurers hold up to $1.7 trillion in overseas assets (mainly US Treasuries), with a long-standing lack of sufficient currency hedging. Historically, the Central Bank could effectively suppress TWD appreciation, but now its policy space is limited. Insurers are panic-hedging more aggressively. If foreign exchange hedging returns to historical levels, this alone could trigger about $100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP.

The Meaning of US Dollar Appreciation: Will the TWD Continue to Rise?

Assessing Fair Valuation via REER Index

The key tool for evaluating whether the exchange rate is over- or undervalued is the Real Effective Exchange Rate (REER) index compiled by the Bank for International Settlements (BIS). As of the end of March:

• US Dollar Index around 113 → clearly overvalued
• TWD Index around 96 → still reasonably undervalued
• JPY Index 73, KRW Index 89 → major Asian currencies are generally undervalued

This suggests that although the TWD has recently surged strongly, its fundamentals still support further appreciation.

Long-term Comparison with Other Asian Currencies

Looking beyond the recent abnormal volatility to the period from the start of this year to now reveals an interesting pattern:

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

All three are within a similar range, indicating that despite the recent rapid gains, the TWD’s overall annual performance aligns with regional trends.

UBS’s Outlook for the Future

UBS’s report indicates that the TWD’s appreciation trend is likely to continue from multiple perspectives: first, valuation models show the TWD has shifted from moderate undervaluation to about 2.7 standard deviations above fair value; second, FX derivatives markets show the strongest bullish outlook in five years; third, historical experience suggests that large single-day gains are rarely followed by immediate reversals.

However, UBS also offers a pragmatic expectation: the 28 TWD per USD level will be difficult to break. When the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), official interventions are expected to intensify, gradually stabilizing exchange rate fluctuations.

A Decade of Exchange Rate Review: Understanding the Long-term Dynamics of the TWD

Over the past ten years (October 2014 to October 2024), the USD/TWD exchange rate has fluctuated between 27 and 34, a 23% range, which is relatively stable among global currencies. In comparison, the JPY experienced a 50% fluctuation (from 99 to 161), indicating Taiwan’s currency is more stable.

The TWD’s ups and downs are highly correlated with Federal Reserve policies. During 2015–2018, when the US implemented quantitative easing, the TWD strengthened; after 2018, as the US raised interest rates, the TWD came under pressure. Following the COVID-19 pandemic in 2020, the Fed expanded its balance sheet from $4.5 trillion to $9 trillion and cut interest rates to zero, pushing the TWD to a high of 27 per USD.

In 2022, US inflation spiraled out of control, prompting the Fed to sharply raise interest rates, strengthening the dollar. It wasn’t until September 2024, when the Fed ended its rate hike cycle and began cutting rates, that the exchange rate returned to around 32.

Market Psychological Levels: 30 and 32

During this ten-year fluctuation, two key psychological levels have formed. Below 30, many investors see it as a buying opportunity for USD; above 32, it’s viewed as a selling point. These levels essentially reflect Taiwan’s long-term equilibrium range and market consensus.

How to Capitalize on This Market Movement?

Strategies for Experienced Forex Traders

If you have trading experience and high risk tolerance, you can engage in short-term USD/TWD trading on forex platforms, capturing daily or even hourly fluctuations. If you hold USD assets, you can use derivatives like forward contracts to hedge and lock in gains from TWD appreciation in advance.

Conservative Advice for Beginners

For novice investors wanting to participate, remember these principles: start with small amounts, avoid impulsive increases, and strictly implement risk management. Practicing with demo accounts is wise, allowing you to test your trading logic without risking real money.

Using low leverage on USD/TWD is key to reducing risk, and setting clear stop-loss points protects your capital. Many forex platforms offer demo trading; beginners should make full use of these tools.

Long-term Investment Allocation

From a long-term perspective, Taiwan’s economic fundamentals remain solid, with robust semiconductor exports. The probability of the TWD oscillating between 30 and 30.5 remains high. However, FX positions should be limited to 5–10% of total assets, with remaining funds diversified into global assets to mitigate risk.

It’s advisable to combine TWD holdings with investments in Taiwan stocks or bonds. Even if exchange rates fluctuate significantly, overall risk can be effectively managed. Keep a close eye on central bank policies and US-Taiwan trade negotiations, as these factors will directly influence future exchange rate movements.

Risk Warning

No matter what strategy you adopt, avoid putting all your eggs in one basket. Diversification is not only smart investing but also a fundamental risk management principle.