USD to TWD exchange rate chaos! The underlying logic and trend forecast of breaking the 30 TWD per 1 USD barrier

NT Dollar Defense and Offense Battle: Why Did It Surge Nearly 10% in Just Two Days in May?

Remember the pessimistic forecasts in the investment market about the NT dollar’s outlook a month ago? At that time, many analysts even worried that the New Taiwan dollar might break through 34 or even 35 against the US dollar, but the market suddenly reversed. In just 30 days, the entire foreign exchange landscape experienced a dramatic turnaround.

May 2nd became a watershed in NT dollar exchange rate history. The USD to NT dollar exchange rate skyrocketed by 5% in a single day, rewriting the 40-year record for the largest single-day gain, ultimately closing at 31.064. But that’s not even the most astonishing part—after the market opened on May 5th, the NT dollar strengthened again by 4.92%, and intraday even broke the psychological barrier of 30, reaching a high of 29.59.

In just two trading days, the appreciation reached nearly 10%, not only setting a new 15-month high but also triggering the third-largest trading volume in foreign exchange market history. To put it simply: the market is crazy.

To calm market sentiment, Taiwan’s top government officials moved swiftly. President Lai Ching-te issued a five-point statement to reassure investors, and Central Bank Governor Yang Chin-tung held a press conference to clarify that the central bank did not intervene in the forex market. But honestly, this abnormal appreciation of the NT dollar has indeed exceeded the scope of traditional economic logic.

Three Drivers Behind the Rapid USD Movement

Trump’s Tariff Policies Spark the Fire

The announcement that President Trump would delay the implementation of reciprocal tariffs by 90 days immediately triggered two major market expectations.

First, global importers would concentrate on completing their imports before tariffs take effect. Taiwan, as a key export hub (semiconductors, electronics manufacturing, etc.), benefited significantly from this import surge, providing strong support for the NT dollar.

Second, the International Monetary Fund (IMF) unexpectedly raised its forecast for Taiwan’s economic growth in 2024. The Taiwan stock market also performed well, attracting massive foreign investment inflows, which became the primary driver behind this upward momentum.

The Central Bank Faces an Inescapable Dilemma

Interestingly, when the central bank issued an emergency statement on May 2nd, it was very cautious, attempting to explain the currency surge as “market expectations that trade partners’ currencies might appreciate due to US demands,” but did not directly address the most pressing concern—whether US-Taiwan negotiations involved clauses related to NT dollar appreciation.

The underlying worry is that: the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly targets “currency intervention” as a review focus, which directly threatens Taiwan’s central bank’s historically effective forex regulation capabilities.

Numbers tell the story more clearly. Taiwan’s trade surplus in the first quarter reached US$23.57 billion (up 23% year-on-year), with the surplus against the US soaring by 134% to US$22.09 billion. Without the traditional intervention tools of the central bank, the upward pressure on the NT dollar is indeed substantial.

Structural Risks in the Financial System Surface

UBS’s latest research report offers a deeper explanation: the abnormal volatility on May 2nd actually reflected a “panic-driven operation” by Taiwan’s financial institutions.

Analysis shows that Taiwanese insurers and exporters engaged in large-scale forex hedging operations, coupled with concentrated closing of NT dollar financing arbitrage trades. These institutional actions collectively caused irrational exchange rate fluctuations. More concerning, UBS warns that when the NT dollar retraces, insurance companies might further increase hedging ratios, with potential dollar selling pressure reaching as high as US$1 trillion (about 14% of Taiwan’s GDP).

The Financial Times of the UK further pointed out the core issue: Taiwanese life insurers hold US$1.7 trillion in overseas assets (mainly US Treasuries), yet have long lacked sufficient hedging measures. The fundamental reason is that “Taiwan’s central bank used to effectively suppress sharp NT dollar appreciation,” but now “the central bank is caught in a dilemma… worried that intervention might lead the US to label Taiwan as a currency manipulator.”

However, Central Bank Governor Yang Chin-tung rebutted this at the May 5th press conference, emphasizing that life insurers, compared to large exporters, have not increased their operations.

Future Outlook of USD/NTD: Technical vs. Fundamentals

Limited Room for Appreciation, 28 Yuan Unlikely

The market generally expects US pressure for further NT dollar appreciation, but the absolute space for appreciation is limited. Most industry insiders believe that the probability of the NT dollar reaching 28 per USD is very low.

Judging Exchange Rate Fairness with REER Index

To assess whether the exchange rate is reasonably valued, the Bank for International Settlements (BIS) compiled the Real Effective Exchange Rate (REER) index, which is a key reference. The index uses 100 as the equilibrium value; above 100 indicates overvaluation, below 100 suggests undervaluation risk.

Based on the latest data at the end of March:

• US dollar index: about 113 → clearly overvalued
• NT dollar index: about 96 → reasonably undervalued
• Yen index: only 73, Korean won index: 89 → more pronounced undervaluation among major Asian export currencies

( Horizontal Comparison: NT dollar’s Rise No Different from Peers in Asia

If we extend the observation period from recent abnormal fluctuations to from the beginning of the year to now, the cumulative appreciation of the NT dollar against the USD is roughly comparable to the yen and won:

• NT dollar appreciation: 8.74%
• Yen appreciation: 8.47%
• Won appreciation: 7.17%

This indicates that the NT dollar’s trend is actually synchronized with the overall Asian currency movements, not an isolated phenomenon.

) UBS Report’s Core Conclusion

Although the recent surge of the NT dollar has been rapid, from multiple dimensions, there is still room for further appreciation:

Valuation models show that the NT dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; forex derivatives markets indicate the “strongest appreciation expectation in five years”; historical experience suggests that after similar large single-day jumps, immediate retracement is unlikely.

UBS advises investors not to prematurely reverse their positions, but when the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention efforts to stabilize volatility.

How Should Investors Respond to NT Dollar Trends?

( Advanced Traders’ Strategies

If you have forex trading experience and high risk tolerance, two major strategies are worth considering:

First, engage in short-term trading of USD/TWD or related currency pairs on forex platforms to capture daily or intra-day volatility opportunities. Second, if you hold US dollar assets, use derivatives like forward contracts to hedge and lock in gains from NT dollar appreciation in advance.

) Conservative Entry for Beginners

Newcomers to forex should remember a few principles: start with small amounts to test the waters, never impulsively increase positions. Loss of control can lead to instant liquidation. It’s recommended to begin with small-scale short-term trading of popular currency pairs to build practical experience gradually.

Long-term Investment Allocation Advice

With Taiwan’s solid economic fundamentals and booming semiconductor exports, the NT dollar is expected to remain relatively strong within the 30 to 30.5 range. For long-term investments, always adhere to risk management principles: limit forex exposure to 5%-10% of total assets, diversify remaining funds into other global assets to effectively reduce overall portfolio risk.

Use low leverage when trading USD/TWD, and strictly set stop-loss points to protect yourself. Many forex platforms offer free demo accounts, allowing beginners to test trading strategies in a simulated environment. Also, closely monitor Taiwan’s central bank’s forex operations and US-Taiwan trade negotiations, as these variables will directly influence USD movements.

Don’t forget the principle of diversification: combine investments in Taiwan stocks or bonds, so even if exchange rates fluctuate sharply, the overall risk of your portfolio remains manageable.

Review of NT Dollar’s Past Decade: Looking at the Future from History

Over the past decade (October 2014 to October 2024), the USD/NT dollar exchange rate fluctuated between 27 and 34, with a volatility of 23%. Compared to global currencies, this is relatively moderate.

In comparison: the yen, historically considered a safe-haven currency, had a volatility of up to 50% (from 99 to 161 against USD), twice that of the NT dollar.

The True Drivers of NT Dollar Movement: Fed Policies

The key to NT dollar fluctuations is not Taiwan’s central bank but the US Federal Reserve (Fed). Taiwan’s interest rate changes are small, and exchange rate movements mainly follow the Fed’s policy rhythm.

2015–2018: Under the impact of China’s stock market crash and the European debt crisis, the US slowed its balance sheet reduction and continued quantitative easing, leading to a strengthening of the NT dollar.

Post-2018: As the US economy improved, the Fed began raising interest rates, planning to maintain high yields and shrink its balance sheet. But in 2020, with the pandemic, the Fed expanded its balance sheet from US$4.5 trillion to US$9 trillion and lowered interest rates to zero. As a result, the NT dollar appreciated to around 27 per USD.

After 2022: US inflation spiraled out of control, forcing the Fed to rapidly hike interest rates, causing the dollar to rebound. The NT dollar exchange rate fluctuated from 27 to around 33.

September 2024: The Fed finally started cutting rates, and the USD/NT dollar rate fell back to around 32.

Market “Psychological Levels” as Reference

Looking back, most investors have a mental benchmark for USD/NT dollar: below 30 is considered a good buy for USD, above 32 should be considered a sell.

This “30-yuan psychological barrier” reflects the market’s consensus on the long-term value of the NT dollar and is a key focus for long-term forex investors.