New Taiwan Dollar Breaks the 30-NTD Barrier: A Complete Analysis from Exchange Rate Surge to Investment Strategies

The New Taiwan Dollar Surged 5% in a Single Day! Where Did This Appreciation Come From?

In just two trading days, the USD/TWD exchange rate skyrocketed nearly 10%. Such a trend is almost unheard of in the past 40 years—on May 2nd, the New Taiwan Dollar surged 5% in a single day, setting a 40-year record for the largest daily gain, closing at 31.064; then on May 5th, the TWD continued its strong rise by 4.92%, breaking the psychological barrier of 30 during intraday trading, with a high of 29.59.

How fierce is this rally? Look at other Asian currencies—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%. But the appreciation of the TWD is clearly more intense, making it an outlier among Asian currencies.

The Three Main Drivers Triggering the TWD Appreciation Storm

First Momentum: Expectations of Trump’s Tariff Policies

After U.S. President Trump announced a 90-day delay in implementing reciprocal tariffs, the market immediately anticipated two strong effects: global companies would initiate a wave of centralized procurement, and Taiwan, as an important export base, could benefit in the short term; simultaneously, the IMF unexpectedly raised Taiwan’s economic growth forecast. Coupled with recent stellar performance of the Taiwan stock market, these positive news attracted massive foreign investment, becoming the first wave of driving forces behind the TWD’s appreciation.

Second Pressure: The Dilemma Faced by the Central Bank

On May 2nd, the Central Bank issued an emergency statement blaming the currency fluctuations on “market expectations that trade partners’ currencies may appreciate due to the U.S.,” but made no mention of whether the U.S.-Taiwan tariff negotiations involved exchange rate clauses, which market concerns most.

The issue lies in Trump’s “Fair and Reciprocal Trade Plan,” which explicitly emphasizes “currency intervention” as a key review point. This puts Taiwan’s central bank in a dilemma—if it intervenes forcefully as in the past, it risks being labeled a currency manipulator by the U.S.; if it does not intervene, the TWD will face upward pressure due to large trade surpluses. Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-on-year, with the U.S. surplus soaring 134% to $22.09 billion. These figures point to underlying pressure for continued TWD appreciation.

Third Driver: Hedging Operations by Financial Institutions

UBS’s latest research report indicates that a 5% single-day increase exceeds what traditional economic indicators can explain. The real behind-the-scenes drivers are large-scale currency hedging operations by Taiwanese insurers and exporters, as well as concentrated closing of TWD financing arbitrage trades.

The Financial Times bluntly pointed out the root cause: Taiwanese life insurers hold overseas assets worth up to $1.7 trillion (mainly U.S. Treasuries), yet lack sufficient hedging measures. Historically, the Taiwan central bank could effectively suppress sharp TWD appreciation, but now it faces a dilemma, forcing insurers to panic-hedge, which amplifies exchange rate volatility.

Central Bank Governor Yang Jinlong later rebutted this analysis at a press conference, emphasizing that compared to large exporters, insurers have not significantly increased their operations, but market concerns about structural risks remain.

What Does the Future Hold for USD/TWD?

Limited Upside: Difficult to Reach 28

Although Trump’s administration may pressure the TWD to continue appreciating, most industry insiders believe that the possibility of the TWD reaching 28 per USD is very slim. The market consensus is that upside potential is already quite limited.

Valuation Indicators Reveal the Truth

The key indicator for assessing exchange rate fairness is the Real Effective Exchange Rate (REER) compiled by the Bank for International Settlements (BIS). A value of 100 indicates equilibrium; above 100 suggests overvaluation, below 100 indicates undervaluation risk.

As of the end of March:

• The USD index was about 113, indicating a clear “overvaluation”
• The TWD index remained around 96, in a “reasonably undervalued” zone
• Compared to other major Asian export currencies, undervaluation is even more pronounced, with the Yen and Won indices at 73 and 89 respectively

( Regional Currency Appreciation Comparison

Looking at the longer-term from the start of the year, the appreciation of the TWD is roughly synchronized with the Yen and Won:

• TWD up 8.74%
• Yen up 8.47%
• Won up 7.17%

Despite the recent rapid appreciation, from a longer-term perspective, the TWD’s trend remains aligned with regional currencies and has not deviated significantly.

) UBS’s Key Conclusions

UBS believes the TWD’s appreciation trend will continue—first, valuation models show the TWD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; second, the FX derivatives market shows the “strongest appreciation expectations in five years”; third, historical experience suggests that such large single-day gains are unlikely to immediately reverse.

UBS recommends investors avoid premature counter-trading, but expects that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), authorities may step up intervention to smooth volatility.

How Can Investors Seize This Opportunity?

( Advanced Strategies for Forex Traders

Experienced traders can adopt two main tactics: first, engage in short-term trading of USD/TWD or related currency pairs on forex platforms to capture daily or intraday fluctuations; second, if holding USD assets, use derivatives like forward contracts to lock in gains from TWD appreciation.

) Conservative Approach for Beginners

New investors aiming to participate in recent volatility should remember a few principles: start with small amounts, avoid impulsive leverage. Many platforms offer demo trading accounts for free practice, allowing testing of strategies. The key is to set stop-loss points to protect capital.

Regarding how much USD to buy, it’s advisable for beginners to gradually build positions with small amounts, and when USD/TWD hovers between 30 and 30.5, consider gradually increasing holdings—no need for full upfront investment.

Risk Management for Long-Term Allocation

Long-term investors should recognize that Taiwan’s economic fundamentals remain solid, with robust semiconductor exports supporting the TWD’s relative strength. Expect the TWD to oscillate within the 30 to 30.5 range. But a crucial reminder: foreign exchange positions should be controlled within 5%-10% of total assets, with remaining funds diversified into other global assets to mitigate currency concentration risk.

Use low-leverage trading for USD/TWD, and keep a close eye on Taiwan’s central bank policies and U.S.-Taiwan trade developments—these are key variables directly affecting the exchange rate. Additionally, consider pairing with Taiwan stocks or bonds to strengthen overall portfolio resilience.

A Decade in Review: Cyclical Fluctuations of the TWD Exchange Rate

Over the past decade (October 2014 to October 2024), USD/TWD has fluctuated between 27 and 34, with an amplitude of about 23%. Compared to global currencies, the TWD’s volatility is relatively mild—Yen swings up to 50% (from 99 to 161), twice that of the TWD.

The power to determine the TWD’s rise or fall is not solely in Taiwan’s central bank but depends on the Federal Reserve’s policy direction. From 2015 to 2018, amid China stock market crashes and European debt crises, the Fed slowed QT and implemented quantitative easing, strengthening the TWD. After 2018, the Fed raised interest rates, but the COVID-19 pandemic struck in 2020, causing the Fed’s balance sheet to expand from $4.5 trillion to $9 trillion, with rates near zero, leading to USD depreciation and the TWD soaring to a historic high of 27 per USD.

Post-2022, U.S. inflation spiraled out of control, prompting the Fed to rapidly hike rates, causing the dollar to reverse and appreciate, with the exchange rate climbing back from 27 and oscillating within a narrower range. It wasn’t until September 2024, when the Fed ended its rate hike cycle and started cutting rates, that the USD/TWD returned to around 32.

Market Consensus and Investment Reference Points

Past ten years’ experience shows a common “psychological scale”: when USD/NTD is below 30, most investors consider it a good buy; above 32, they should consider reducing holdings. For long-term FX investments, this can serve as an important reference.

In summary, the recent TWD appreciation is driven by global geopolitical and economic shifts, as well as Taiwan’s solid economic fundamentals. Investors should fully understand the risks, and adjust their positions flexibly according to their risk tolerance and investment horizon to seize opportunities amid volatility.