Hong Kong Dollar to New Taiwan Dollar Exchange Rate Trend in 2024: Rebounding from 3.905 to 4.05, How Will the Market Develop?

Current Situation: Why Did the Hong Kong Dollar Suddenly Rebound?

As major circulating currencies in Asia, the Hong Kong dollar and the Taiwan dollar’s exchange rate fluctuations directly reflect regional economic dynamics. According to statistics from Taiwan’s Tourism Bureau, Hong Kong ranked first in inbound travelers to Taiwan in 2023, with 770,000 visitors, indicating frequent economic and trade exchanges between the two regions. The trend of the HKD exchange rate has a tangible impact on both sides.

Entering 2024, the HKD to TWD exchange rate shows clear signs of rebound. From an early-year level of 3.905, it rose to 4.05 in February, an increase of about 3.8%. Two main forces drive this upward movement: first, the US February CPI and PPI data exceeded expectations, dispelling market expectations of rate cuts starting in March, which strengthened the US dollar; second, political changes in Taiwan—Democratic Progressive Party candidate Lai Ching-te was elected in January, but the Legislative Yuan did not hold a majority, raising concerns among investors about cross-strait relations and new government policies, exerting pressure on the TWD.

Historical Context: How Is the Hong Kong Dollar Pegged to the US Dollar?

To understand the future trend of the HKD exchange rate, it is essential to review its unique historical background. The HKD as Hong Kong’s legal tender dates back to British colonial rule in 1841. Initially, the HKD circulated in a mixed form with Spanish silver dollars and Mexican dollars until 1862, when the Hong Kong government began issuing banknotes.

The pivotal turning point occurred on October 17, 1983, when Hong Kong officially adopted the linked exchange rate system, fixing the HKD within a narrow band of 7.8 HKD per USD. This mechanism firmly tied the HKD’s value to the USD and became a decisive factor influencing the HKD/TWD exchange rate in later years.

Long-Term Trajectory: Fluctuations with Clues

Since 2007, the HKD to TWD exchange rate has generally oscillated around a midpoint of 4.0, within a range of 3.5 to 4.5, with an overall downward trend. Historically, the high point was in early 2009 when the HKD to TWD briefly broke above 4.5; the low was in January 2022 at 3.5.

Mid-term, after bottoming out in 2022, the HKD to TWD began to recover, but upward momentum faced significant resistance around 4.15, which has become the ceiling for rebounds. The current level of 4.05 is relatively moderate, leaving limited room for further appreciation.

Outlook: Downward Probability Under Rate Cut Cycle

In 2024, the HKD to TWD exchange rate will likely face two scenarios:

Base Scenario (Higher Downward Probability): The US Federal Reserve is widely expected to enter a rate-cutting cycle in 2024. Unless black swan events (such as war or major sanctions) trigger inflation, rate cuts are inevitable. Historical data shows that during rate-cutting periods, the HKD tends to weaken against the TWD. For example, in 2008, the rate cut led to a 9.88% decline; in 2019, a 13.17% decline. Using similar logic, a 10% drop from 4.15 would target around 3.735.

Upside Scenario (Lower Probability): If the US economy continues to outperform expectations or geopolitical conflicts push oil prices higher, leading to inflation rebounds, the Fed may delay rate cuts or consider maintaining high interest rates. In this case, the HKD could appreciate against the TWD, with the first resistance at 4.15, marking the top of the long-term downtrend channel.

Key Variable Analysis

Variable 1: US Monetary Policy Direction

The HKD is directly pegged to the USD with free capital flow, so US interest rate trends inevitably influence the HKD. When markets anticipate US rate hikes or monetary tightening, the USD strengthens, lifting the HKD against the TWD; conversely, the HKD weakens. Macroeconomic indicators like non-farm payrolls and quarterly CPI reports serve as windows into US policy direction.

Variable 2: Taiwan’s Domestic Economic Momentum

Taiwan’s economic health directly impacts the demand for TWD. When Taiwan’s economy grows rapidly, foreign capital inflows increase, boosting the TWD and exerting downward pressure on the HKD/TWD rate. For example, in late 2021, Taiwan’s GDP growth reached 6.1%, and the HKD to TWD rate fell to 3.5; in 2022, as growth slowed and early 2023 even contracted, the HKD appreciated to around 4.15. Political changes also influence market expectations; for instance, after the DPP took power in 2015, cross-strait relations changed, affecting economic growth.

Variable 3: Global Risk Environment

Global economic shifts can trigger risk appetite changes among investors. When risks rise, capital tends to flow into safe-haven assets like the USD, benefiting the USD-pegged HKD, while capital withdrawal from Asian emerging markets can be bearish for the TWD.

Long-Term Stability of the Peg

Discussions about de-pegging the HKD from the USD have persisted. After the Asian financial crisis last century, currencies like Japan, South Korea, and Southeast Asian nations depreciated, making their exports cheaper and attracting capital back, leading to rapid economic recovery. However, Hong Kong, constrained by the linked exchange rate system, could not use monetary policy for stimulus, experiencing decades of economic sluggishness until the global economic recovery in 2003 and China’s WTO accession. Recently, with the internationalization of the RMB and evolving US-China relations, some voices suggest replacing the peg with RMB, aiming to create a financial hub different from New York or London.

In reality, after decades of market volatility and geopolitical tests, the HKD-USD peg has remained stable. Only extreme crises like US sanctions or war-level conflicts could challenge this system. For the foreseeable future, investors need not overly worry about its stability.

Frequently Asked Questions

Q1: What is the outlook for the HKD to TWD exchange rate in 2024-2025?

A: If the US enters a rate-cutting cycle as expected, the HKD to TWD will likely depreciate, with a target around 3.73-3.9.

Q2: How can investors participate in HKD/TWD trading?

A: Taiwanese investors can exchange directly through banks or trade via forex brokers.

Q3: Which factors should be prioritized when analyzing exchange rate trends?

A: The long-term trend primarily depends on US monetary policy, followed by Taiwan’s economic fundamentals; short-term fluctuations can be analyzed through technical and pattern analysis.

Q4: Is it safe to operate within the linked exchange rate band (7.85-7.75)?

A: Theoretically, arbitrage is possible, but after deducting interest, time costs, and transaction fees, actual gains are often minimal. Retail participation has limited significance.