Will the US dollar still fall? NT$ breaks through 30, a complete analysis of the 2025 foreign exchange trend

Why Is the NT Dollar Soaring? Unveiling the Three Major Drivers

The New Taiwan Dollar has recently staged a thrilling exchange rate drama. In just two trading days, the USD to TWD exchange rate surged over 9%, a speed of appreciation unprecedented among Asian currencies. What forces are driving this abnormal surge in the NT dollar?

The first wave of momentum comes from the reshaping of global trade patterns. After the U.S. government announced a reciprocal tariff policy, the market anticipated Taiwan—being a key player in the global supply chain—would benefit from concentrated procurement. Meanwhile, the IMF raised Taiwan’s economic growth forecast, and the Taiwan stock market performed brilliantly. These positive news flows attracted a rush of foreign capital inflows, directly increasing the upward pressure on the USD against the TWD.

The second wave of momentum stems from the central bank’s policy dilemma. When the U.S. Treasury explicitly prioritized “currency intervention” for review, the central bank faced an unprecedented predicament. Its habitual interventions in the forex market, previously seen as currency manipulation, now risked being scrutinized, causing market concern that the central bank’s defense line might loosen. Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, up 23% year-on-year, with the U.S. trade surplus soaring 134% to USD 22.09 billion. Without the central bank’s intervention, the appreciation potential of the USD against the TWD would naturally open up.

The third wave of momentum comes from risk release within the financial system. According to UBS research, Taiwan’s life insurance industry holds USD 1.7 trillion in overseas assets but has long lacked sufficient currency hedging deployment. When the market signals appreciation, insurers concentrate on hedging operations. Coupled with a wave of closing out NT dollar financing arbitrage trades, these factors amplify exchange rate volatility. Studies warn that if foreign exchange hedging scales return to normal levels, it could trigger about USD 1 trillion in dollar selling pressure—equivalent to 14% of Taiwan’s GDP—posing a significant potential risk.

Will the USD Fall Again? Multiple Indicators Interpret the Outlook

Will the NT dollar continue to appreciate? Or has it already peaked? Market opinions vary.

From valuation indicators, the BIS’s real effective exchange rate index(REER) offers important clues. As of the end of March, the USD index was about 113, indicating a significant overvaluation; in contrast, the TWD index remained around 96, showing a reasonably undervalued stance. This suggests that, from a valuation perspective, the USD still has room to weaken further, but also that the TWD’s appreciation has approached a fair value.

From regional comparisons, the TWD has appreciated 8.74% this year, the Yen 8.47%, and the Korean Won 7.17%. The currency appreciation rates are roughly synchronized across these countries. This indicates that although the TWD’s recent volatility is eye-catching, its long-term trend aligns with regional currencies, not an isolated phenomenon.

According to UBS’s latest report, despite the recent aggressive rise of the TWD, multiple dimensions suggest the 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 above. Second, the foreign exchange derivatives market shows the “strongest appreciation expectations in five years.” Third, historical experience indicates that large daily gains are rarely immediately reversed. UBS advises investors not to prematurely adopt contrarian positions.

Regarding the psychological threshold of 28 yuan, most industry insiders believe the probability of USD/NTD falling below 28 is very low. It is expected that when the trade-weighted index of the TWD rises another 3% and approaches the central bank’s tolerance limit, authorities may increase intervention efforts to smooth out volatility.

Review of the USD Trend: The Ups and Downs of the Past Decade

To understand the future of the USD against the TWD, we must first look at the past.

Over the past decade (2014–2024), the USD/TWD exchange rate has fluctuated between 27 and 34, with a volatility of only 23%, relatively mild compared to global currencies. In contrast, the USD/JPY exchange rate has experienced a 50% swing (between 99 and 161), more than twice the volatility of the TWD.

From 2015 to 2018, China’s stock market crash and the European debt crisis erupted. The U.S. slowed its balance sheet reduction and restarted quantitative easing, leading to a period of TWD appreciation. After 2018, as the U.S. economy improved and interest rate hikes commenced, the Fed aimed to maintain high interest rates and shrink its balance sheet. However, the COVID-19 pandemic in 2020 caused the Fed to rapidly double its balance sheet from USD 4.5 trillion to USD 9 trillion.

Under this easing policy, the dollar faced significant depreciation pressure, and USD/TWD fell to a historic low of 27. Until 2022, when U.S. inflation spiraled out of control, prompting the Fed to aggressively hike interest rates, the dollar reversed its decline, returning to a relatively high range.

A turning point appeared in September 2024, when the Fed ended its rate hike cycle and began cutting rates. The USD/TWD exchange rate started to retreat from high levels. Most market participants believe that 30 is an important psychological level for USD/NTD. Below 30, USD is considered a good buy; above 32, it’s time to consider selling.

How to Find Opportunities Amidst Volatility?

Different types of investors should adopt different strategies.

If you are an experienced forex trader, you can directly trade USD/TWD or related currency pairs on forex platforms to quickly capture volatility opportunities. If you already hold USD assets, you can use derivatives like forward contracts to lock in appreciation gains, ensuring the NT dollar’s rise benefits you first.

If you are a forex trading novice, the primary rule is risk control. Start with small amounts to test the waters—avoid impulsive increases to prevent emotional reactions from disrupting your strategy. Many platforms offer small-scale short-term trading of various currency pairs. Beginners can practice on demo accounts to test their trading strategies.

Long-term investors should focus on the overall picture. Taiwan’s economic fundamentals are solid, with sustained strength in semiconductor exports. The probability of the TWD oscillating within the 30 to 30.5 range remains high, and its relatively strong position is likely sustainable. However, it’s crucial to keep forex positions within 5%-10% of total assets and diversify remaining funds into global assets to effectively manage overall risk.

Practical operational tips: Use low leverage when trading USD/TWD, set clear stop-loss points for self-protection; closely monitor Taiwan’s central bank moves and the latest U.S.-Taiwan trade negotiations, as these directly influence exchange rates; combine with investments in Taiwan stocks or bonds to keep overall portfolio risk manageable despite currency fluctuations.

Summary: What’s Next for the USD?

Based on comprehensive analysis, the USD against the TWD is unlikely to weaken significantly in the short term. Central bank policies, international geopolitical shifts, and market expectations all point to the possibility of a new upward cycle for the TWD around the 30 yuan level. However, the extreme appreciation below 28 yuan has limited fundamental support.

The best investment approach is to stay within the reasonable range of 30 to 30.5 and adjust USD holdings flexibly according to your risk appetite. This way, you can participate in the opportunities brought by the TWD’s appreciation while avoiding overexposure to a single currency. Always be prepared for potential reversals caused by central bank interventions—that’s the survival strategy in a volatile era.