The truth behind the New Taiwan Dollar rapidly breaking through the 30 barrier! How does the US dollar trend affect future exchange rates? A must-read for 2025 investors

Taiwanese Dollar Exchange Rate Dramatic Shift: From Warning Signs of Depreciation to Surprising Rebound

Remember a month ago? The entire market was worried that the New Taiwan Dollar would break through 34 or even 35 against the US dollar, and the Taiwan stock market was also plunging in panic. Unexpectedly, in just 30 days, Taiwan’s financial market has made a 180-degree turn.

How fierce was this reversal in early May? The New Taiwan Dollar against the US dollar surged by 5% in a single day on May 2nd, setting a 40-year record for the largest gain, closing at 31.064. Less than a week later, on May 5th, it rose another 4.92%, breaking the psychological barrier of 30, with an intraday high of 29.59.

In just two trading days, the New Taiwan Dollar appreciated nearly 10%—how abnormal is this speed? The foreign exchange market saw the third-largest trading volume in history on that day, illustrating the market’s shock. To put it in perspective, from the beginning of this year to early April, the New Taiwan Dollar was slowly depreciating by about 1%. This reversal’s intensity is rare in recent years.

US Dollar Trend Reversal Drives Asian Currencies Higher

This sharp rise of the New Taiwan Dollar is not an isolated case. After US President Trump announced a reciprocal tariff policy, the entire Asian currency camp strengthened—renminbi, Hong Kong dollar, Japanese yen, Singapore dollar, and others all appreciated. Among them, the Singapore dollar rose 1.41%, the Japanese yen 1.5%, and the Korean won surged 3.8%.

But why is the appreciation of the New Taiwan Dollar particularly remarkable? It is closely related to Taiwan’s economic structure. As a typical export-oriented economy, Taiwan’s net foreign investment reaches 165% of GDP, making its overall economy highly sensitive to exchange rate fluctuations. This sensitivity is both an advantage and a risk—every movement of the exchange rate can amplify its impact on the economy.

Three Driving Forces Behind the Rapid Appreciation of the New Taiwan Dollar

First Layer: US Tariff Policy Ignites the Fuse

The Trump administration announced a 90-day delay in implementing reciprocal tariffs, triggering two major chain reactions in the market:

First, market expectations of a global procurement surge emerged, with Taiwan, as a key supplier of electronics and semiconductors, set to benefit first. This led to a frenzy of foreign capital inflow into Taiwan, becoming the first strong driver pushing the New Taiwan Dollar higher.

Second, the International Monetary Fund (IMF) soon raised Taiwan’s economic growth forecast for this year, coupled with the impressive performance of Taiwan stocks, further boosting market confidence in Taiwan’s economic prospects.

Second Layer: The Dilemma Faced by the Central Bank

Taiwan’s Central Bank Governor Yang Jinlong issued an emergency statement on May 2nd, attributing the sharp rise of the New Taiwan Dollar to “market expectations that the US may request trading partners to appreciate their currencies.” But this explanation sidesteps a key question: does the Taiwan-US negotiation involve exchange rate clauses?

In fact, the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a review focus. This presents an unprecedented dilemma for the Central Bank—while in the past, the Central Bank could effectively suppress significant appreciation of the New Taiwan Dollar, now it faces a dilemma: intervening in the forex market might lead the US Treasury to label Taiwan as a currency manipulator.

Numbers tell the story. Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-over-year; the surplus with the US surged 134% to $22.09 billion. Without the constraints of Central Bank intervention, the New Taiwan Dollar indeed faces enormous upward pressure.

Third Layer: Chain Reactions in Financial Institutions

UBS’s latest research report points out that a 5% single-day increase far exceeds what traditional economic indicators can explain. What is the real driver? Large-scale forex hedging operations by Taiwanese insurers and exporters to cope with appreciation expectations, as well as concentrated closing of New Taiwan Dollar financing arbitrage trades.

There is a hidden risk here: Taiwanese life insurers hold up to $1.7 trillion in overseas assets (mainly US Treasuries), yet have long lacked sufficient hedging measures. The reason is simple—previously, the Central Bank could effectively suppress the New Taiwan Dollar’s appreciation, allowing these institutions to rest easy. But now, the situation has changed.

UBS warns that when the New Taiwan Dollar retraces, insurers and exporters may further increase their hedging ratios. Just restoring foreign exchange hedging/deposits to trend levels could trigger about $100 billion in US dollar selling pressure, equivalent to 14% of Taiwan’s GDP. This potential risk warrants close attention.

What Will Happen to the US Dollar Outlook?

( Will the New Taiwan Dollar continue to rise?

Most industry insiders believe that it is highly unlikely for the New Taiwan Dollar to reach 28 against the US dollar. Currently, the market generally expects the Trump administration to continue pressuring the New Taiwan Dollar to appreciate, but the exact extent of appreciation remains uncertain.

UBS’s latest report offers an interesting conclusion: although the recent rally of the New Taiwan Dollar has been fierce, from multiple dimensions, its appreciation trend will continue to advance. Valuation models show that the New Taiwan Dollar has shifted from moderate undervaluation to a level 2.7 standard deviations above fair value; forex derivatives markets indicate the “strongest appreciation expectation in five years”; and historical experience suggests that similar large single-day surges often do not immediately retrace.

UBS advises investors not to prematurely reverse positions, but expects that when the trade-weighted index of the New Taiwan Dollar rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention to smooth volatility.

) Using REER Index to Assess the Rationality of Appreciation

An important indicator for evaluating whether the exchange rate is reasonable is the real effective exchange rate index ###REER### compiled by the Bank for International Settlements (BIS). The index is set at 100 for equilibrium; above 100 indicates overvaluation, below 100 indicates undervaluation risk.

As of the end of March, the US dollar index was about 113, showing a clear “overvaluation” status; meanwhile, the New Taiwan Dollar index remained around 96, in a “reasonably undervalued” state. In comparison, currencies of major Asian export countries are more significantly undervalued—yen index at only 73, Korean won at 89.

( Regional Currency Comparison

If we extend the observation period from recent abnormal fluctuations to the start of the year, we find that the cumulative appreciation of the New Taiwan Dollar is roughly in the same range as the yen and won:

• New Taiwan Dollar appreciation: 8.74%
• Yen appreciation: 8.47%
• Won appreciation: 7.17%

It appears that regional export-oriented economies’ currencies are rising together. Although the New Taiwan Dollar has appreciated rapidly recently, from a longer-term perspective, its trend remains synchronized with overall Asian currencies, with no particular outperformance.

A Decade in Review: Long-term Patterns of US Dollar Movements

Looking back over the past decade (October 2014 to October 2024), the New Taiwan Dollar against the US dollar has fluctuated between 27 and 34, with a volatility of 23%, showing relatively small swings among major global currencies. In contrast, the Japanese yen, as a traditional safe-haven currency, experienced a volatility of 50% (USD/JPY between 99 and 161), twice that of the New Taiwan Dollar.

The New Taiwan Dollar’s interest rate changes have been minimal, so its ups and downs mainly depend on the Federal Reserve’s policy direction )FED###. The historical context is as follows:

2015–2018: China’s stock market crash and the European debt crisis erupted; the US slowed its balance sheet reduction and shifted to continued easing, leading to a strengthening of the New Taiwan Dollar.

Post-2018: The US believed the economy was improving, started raising interest rates and shrinking its balance sheet, but the pandemic in 2020 disrupted these plans. The Fed directly doubled its balance sheet in the short term—from $4.5 trillion to $9 trillion—and lowered interest rates to zero. As a result, the US dollar depreciated significantly, and the New Taiwan Dollar surged to a high of 27 per dollar.

Post-2022: US inflation spiraled out of control, forcing the Fed to rapidly raise interest rates, causing the US dollar to surge again. The New Taiwan Dollar exchange rate also adjusted from 27, generally fluctuating within a narrow range.

Until September 2024, when the Fed ended its high-interest cycle and began cutting rates, the US dollar trend reversed, and the New Taiwan Dollar returned to around 32.

History shows that the fluctuations of the USD/TWD exchange rate are mainly determined by the Fed’s policies, not Taiwan’s central bank. However, market lore holds a “psychological benchmark”—the 30 mark. It is widely believed that USD below 30 is a good buying opportunity, while above 32 might be a signal to sell. For long-term currency investment, these reference points are worth remembering.

How to Seize Opportunities During the New Taiwan Dollar Appreciation Wave?

( For Experienced Traders

If you are already seasoned in forex trading, this volatility offers two direct strategies:

Short-term trading: Use forex platforms to trade USD/TWD or related currency pairs, capturing daily or intraday fluctuations.

Hedging tools: If you hold USD assets, you can lock in the appreciation gains through forward contracts and other derivatives, protecting your assets.

) For Beginners

Want to follow the trend and play short-term during recent volatility? Remember these principles:

Start with small capital to test the waters and explore market rhythm. Never rush to add positions impulsively; a single emotional blowout could end your trading career. Many forex platforms offer demo accounts—try practicing with a simulated account to test your strategies.

Keep a close eye on the latest moves by the Taiwan Central Bank and US-Taiwan trade developments, as these will directly influence future exchange rate trends. Set clear stop-loss points to protect yourself; don’t expect to get rich from one trade.

For Long-term Investors

Taiwan’s economic fundamentals are solid, with robust semiconductor exports. In the medium term, the New Taiwan Dollar may oscillate between 30 and 30.5, remaining relatively strong long-term. But the key principle is: keep forex positions within 5%-10% of total assets; the rest should be diversified into other global assets to effectively reduce risk.

If you want steady forex gains, consider low-leverage trading of USD/TWD and building a diversified portfolio including Taiwan stocks or bonds. This way, even with larger exchange rate swings, your overall risk remains more manageable.

Key Summary: The future of the US dollar trend depends on Fed policies. The sustainability of the New Taiwan Dollar’s appreciation still requires observation. Whether for short-term trading or long-term allocation, risk management is always the top priority—avoid excessive leverage and concentrated bets.