NTD overnight breaks the 30 yuan mark! Buy USD or hold coins? An in-depth analysis of the 2025 exchange rate trend

The Craziest Surge in Ten Years: Why Is the NT Dollar Suddenly Skyrocketing?

Over the past decade, the USD to TWD exchange rate has fluctuated between 27 and 34, with a volatility of about 23%. By global currency standards, the stability of the TWD is actually quite good—compared to the Japanese Yen’s fluctuation of up to 50%, which is twice that of the TWD. However, this “stability” was completely shattered in May this year.

In just two trading days, the new Taiwan dollar surged nearly 10%. On May 2nd, it skyrocketed by 5% in a single day, marking the largest single-day increase in 40 years. Then on May 5th, it rose another 4.92%, breaking the psychological barrier of 30 TWD per USD during trading, with a high of 29.59. This astonishing trend not only hit a 15-month high but also triggered the third-largest trading volume in foreign exchange market history.

It’s important to note that from the beginning of this year until early April, the TWD was still depreciating by 1%. In just one month, market sentiment experienced a dramatic reversal.

What Is the Logic Behind the TWD Appreciating Against the USD? Analyzing the Three Main Drivers

Driver 1: Trump’s Tariff Policies Ignite the Fuse

When U.S. President Trump announced a 90-day delay in implementing reciprocal tariffs, two major expectations immediately emerged. First, global procurement would concentrate, benefiting Taiwan as an export-oriented economy in the short term; second, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with strong performance in the Taiwan stock market. These positive news flows caused foreign capital to flood in, becoming the first wave of momentum pushing the TWD higher.

It’s worth noting that Taiwan’s net foreign investment reaches 165% of GDP, making its economy particularly sensitive to exchange rate fluctuations. Taiwan’s trade surplus in the first quarter hit $23.57 billion (up 23% year-on-year), with the surplus against the U.S. soaring 134% to $22.09 billion. Such trade advantages naturally support the TWD’s appreciation fundamentals.

Driver 2: The Central Bank Faces a Delicate Dilemma

Trump’s “Fair Reciprocity Plan” explicitly targets “intervention in the exchange rate” as a key review point. This means the central bank’s room for aggressive intervention in the forex market has been significantly restricted. Central Bank Governor Yang Jinlong, in a statement on May 2nd, avoided mentioning whether U.S.-Taiwan tariff negotiations involved exchange rate clauses, instead attributing volatility to “market expectations that the U.S. may demand currency appreciation from trade partners.”

Behind this dilemma lies a structural risk in Taiwan’s financial system: Taiwan’s life insurance industry holds overseas assets totaling up to $1.7 trillion (mainly U.S. Treasuries), yet has long lacked sufficient hedging measures against exchange rate risk. Historically, the central bank could effectively suppress sharp TWD appreciation, but now, under U.S. supervision, intervention space has been squeezed to the minimum.

Driver 3: Passive Hedging Operations by Financial Institutions

UBS’s latest research indicates that, beyond market sentiment, large-scale forex hedging by Taiwanese insurers and corporations, along with concentrated unwinding of TWD financing arbitrage trades, jointly caused this exchange rate movement. UBS warns that restoring FX hedging to trend levels could trigger about $100 billion in USD selling pressure (equivalent to 14% of Taiwan’s GDP).

This level of capital fluctuation explains why the TWD’s appreciation far exceeds other Asian currencies—JPY up 1.5%, KRW up 3.8%, SGD up 1.41%—making the TWD’s surge a unique phenomenon among regional currencies.

USD to TWD Outlook: Will the TWD Continue to Rise?

Valuation Perspective: From Undervalued to Fairly High

The key indicator for assessing exchange rate fairness is the BIS’s real effective exchange rate index (REER), with 100 as the equilibrium value. Above 100 indicates overvaluation; below 100 suggests undervaluation.

As of the end of March, the data shows:

• USD index around 113 → clearly overvalued
• TWD index around 96 → fairly undervalued
• JPY index only 73 → more pronounced undervaluation
• KRW index only 89 → generally undervalued among Asian export countries

UBS’s valuation model indicates that the TWD has shifted from moderate undervaluation to a level about 2.7 standard deviations above fair value. In other words, the TWD has transformed from a market-ignored cheap asset into a relatively overvalued one.

Historical Comparison: This Year’s Appreciation Versus Regional Averages

If we extend the observation period from the recent abnormal one-month volatility to the start of the year, an interesting pattern emerges:

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

Despite the recent rapid appreciation of the TWD, over a longer horizon, its trend aligns closely with regional currencies. This suggests that the TWD’s rise is not an isolated event but a reflection of global capital flows and the weakening of the USD.

UBS’s Core Judgment

UBS believes the TWD’s appreciation trend will continue, mainly because:

1. FX derivatives markets show the “strongest appreciation expectation in five years,” indicating market confidence in the TWD’s outlook.
2. Historical experience suggests that large single-day gains are unlikely to be immediately reversed.
3. Most industry insiders see little chance of the TWD reaching 28 per USD, but room remains below 30.

UBS also anticipates that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth volatility.

Where Are the Investment Opportunities in Buying USD with the Appreciating TWD?

Active Short-Term Trading for Forex Experts

If you have confidence in your ability to predict exchange rate movements, you can directly trade USD/TWD or related currency pairs on forex platforms, capturing short-term or intra-day fluctuations. Another strategy is to use derivatives like forward contracts if you already hold USD assets, locking in the appreciation gains.

For Beginners: Volatility Trading

Newcomers to forex should remember a core principle: start small and avoid impulsive leverage. Many forex platforms offer demo accounts—use them to practice and test strategies before risking real money. Setting reasonable stop-loss points is crucial. In high-volatility environments, not having a stop-loss can lead to emotional trading and significant losses. It’s advisable to operate with low leverage on USD/TWD to prevent substantial damage from misjudgments.

Long-Term Investment Approach

From a long-term perspective, buying USD with the TWD amid appreciation makes sense given Taiwan’s solid economic fundamentals, strong semiconductor exports, and the TWD’s potential to oscillate between 30 and 30.5. However, it’s essential to keep FX positions within 5-10% of total assets and diversify into other global assets to effectively manage risk.

Don’t put all your eggs in one basket. Consider combining FX trading with investments in Taiwanese stocks or bonds. Even with currency fluctuations, a diversified portfolio can better control overall risk. Keep a close eye on the actions of Taiwan’s central bank and developments in U.S.-Taiwan trade, as these will directly influence future exchange rate movements.

The Truth Behind the Decade of Fluctuations: The Fed Is the Ultimate Decider of the TWD’s Appreciation

The past decade of exchange rate history reveals an important truth: The main determinant of the TWD’s appreciation or depreciation is actually in the hands of the Federal Reserve, not Taiwan’s central bank.

Post-2008 Financial Crisis and Three Rounds of Quantitative Easing

After the 2008 crisis, the Fed launched three rounds of quantitative easing (QE). In December 2013, the Fed announced plans to taper the third round of QE, leading to rising U.S. interest rates and capital flowing back to the U.S., causing the USD to appreciate against the TWD from the 2013 lows to around 33.

Policy Reversals from 2015 to 2018

Between 2015 and mid-2018, following China’s stock market crash and European debt crises, the U.S. slowed its QT and continued QE, strengthening the TWD.

2018 Rate Hikes and the COVID-19 Shock

After 2018, the U.S. raised interest rates, aiming to maintain high yields and shrink its balance sheet. But in 2020, with the pandemic, the Fed expanded its balance sheet from $4.5 trillion to $9 trillion and cut rates to zero. Under this ultra-loose policy, the USD lost value, and the TWD soared to 27 per USD.

Post-2022 Inflation Fight

Since 2022, U.S. inflation spiraled out of control, prompting the Fed to rapidly hike interest rates, causing the USD to surge and the exchange rate to stay high. It wasn’t until September 2024, when the Fed ended its rate hike cycle and started cutting, that the USD/NTD rate fell back toward 32.

This history clearly shows that the TWD’s rate movements are mainly driven by the Fed’s interest rate policies, with Taiwan’s own interest rate changes playing a minor role. Most traders have a mental “rule”: if USD is below 30, it’s cheap enough to buy; above 32, it’s time to sell. For long-term FX investments, this reference point is valuable.

The current logic of buying USD with the appreciating TWD is based on this—anticipating that the Fed may enter a rate-cutting cycle, capturing the window of relative strength of the TWD might be more advantageous than waiting for some future moment.