The wave of USD depreciation is coming! Can the Taiwanese dollar's upward trend continue? A comprehensive analysis of the USD trend and investment opportunities in 2025

NT Dollar Appreciation Hits Record Highs: What Is the Market Really Expecting?

The recent performance of the New Taiwan Dollar (NTD) has indeed been eye-catching. In just 48 hours, the USD/NTD exchange rate surged nearly 10%, marking the largest single-day gain in 40 years. After a 5% jump on May 2, the rate further climbed 4.92% on May 5, successfully breaking the psychological 30 TWD per USD level, reaching a high of 29.59, triggering the third-largest trading volume in the foreign exchange market.

In contrast, other Asian currencies performed relatively mildly during the same period—Singapore Dollar up 1.41%, Japanese Yen up 1.5%, Korean Won up 3.8%. The sharp appreciation of the NT dollar stands out among regional currencies. What underlying market logic is driving this phenomenon?

The Three Main Drivers Behind the USD Movement

Shift in Trade Policies Leading to Concentrated Expectations

The announcement of the Trump administration’s tariff policies became the catalyst for this wave. When the market learned that tariffs would be delayed by 90 days, two major expectations emerged: a wave of centralized procurement globally, benefiting Taiwan’s export industry in the short term, leading to a rush of foreign capital; simultaneously, the IMF raised Taiwan’s economic growth forecast, and the Taiwan stock market performed remarkably well. These positive factors collectively increased the pressure for the USD to depreciate against the NT dollar.

Limited Policy Space for the Central Bank

On May 2, the central bank issued an emergency statement but did not directly address the core market concern—whether US-Taiwan negotiations involved currency provisions. In fact, the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a review focus. This indicates that the space for the central bank’s traditional intervention in the foreign exchange market is shrinking.

Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, a 23% increase year-over-year, with the US trade surplus soaring 134% to USD 22.09 billion. Without the usual intervention tools of the central bank, upward pressure on the USD/NTD exchange rate is indeed present.

Large-Scale Hedging Operations by Financial Institutions

UBS research pointed out that a 5% single-day increase exceeds what traditional economics can explain. Currency hedging activities by Taiwanese insurers and export companies, along with concentrated closing of NT dollar financing arbitrage trades, have amplified the volatility.

Particularly noteworthy is that Taiwanese life insurers hold up to USD 1.7 trillion in overseas assets (mainly US Treasuries) but lack sufficient currency hedging measures. Historically, the central bank could effectively suppress sharp NT dollar appreciation, but this defense line is now weakening. Restoring foreign exchange hedging to trend levels could trigger about USD 100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP.

How Far Can the USD Rise? An In-Depth Analysis from Four Perspectives

Valuation Indicators Tell Us What

The BIS (Bank for International Settlements) compiled the Real Effective Exchange Rate (REER) index, an important tool for assessing currency valuation. As of the end of March:

• USD Index around 113 → indicates a significant overvaluation
• NT dollar index around 96 → fairly undervalued

Compared to other major Asian export currencies, the undervaluation is even more pronounced, with the Yen and Won indices at 73 and 89 respectively. This suggests that the NT dollar still has room to appreciate, but breaking the psychological barrier of 28 TWD per USD is highly unlikely.

( Horizontal Comparison: The NT dollar is Not Unique in Its Rise

Extending the observation period from the recent abnormal volatility to from the beginning of the year until now, you’ll find that the NT dollar’s appreciation is actually in line with other major Asian currencies:

• NT dollar up 8.74%
• Yen up 8.47%
• Won up 7.17%

While the NT dollar appears to be rallying fiercely on the surface, from a longer-term perspective, its trend is synchronized with regional currencies, with no obvious excess performance.

) UBS’s Optimistic Forecast

UBS’s latest report suggests that the USD/NTD appreciation trend will continue. Key reasons include:

• Valuation models show the NT dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher;
• The foreign exchange derivatives market shows the “strongest appreciation expectations in five years”;
• Historical experience indicates that after similar large single-day jumps, immediate reversals are unlikely.

However, UBS also warns that if the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to stabilize volatility.

( Long-Term Perspective and Historical Regularities

Looking back over the past decade (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with a volatility of only 23%. In comparison, the Yen’s volatility reaches 50% (between 99 and 161), demonstrating the NT dollar’s relative stability.

The key determinant of NT dollar fluctuations is primarily the US Federal Reserve’s policy cycle. When the Fed initiates quantitative easing, the USD depreciates and the NT dollar appreciates; when the Fed raises interest rates, the USD appreciates and the NT dollar depreciates. Between 2020 and 2022, the Fed’s balance sheet expanded from USD 4.5 trillion to USD 9 trillion, weakening the USD and causing the NT dollar to briefly surge to 27. But after 2022, US inflation spiraled out of control, and the Fed rapidly raised interest rates, causing the USD to rally sharply.

How Should Investors Position Themselves?

) Opportunities for Short-Term Traders

Experienced forex traders can directly operate the USD/NTD currency pair on forex platforms to capitalize on short-term fluctuations, capturing price movements over days or even within the same day. If holding USD assets, derivatives like forward contracts can be used for hedging to lock in the appreciation gains.

Proper Approach for Beginners

Investors new to forex should remember a few principles to seize recent volatility opportunities:

First, start small. Don’t be tempted by the intense market swings to over-leverage or hold large positions all at once; impulsive increases can lead to emotional breakdowns. Many forex platforms offer demo trading; beginners should make full use of these to test strategies in a virtual environment.

Second, set reasonable stop-losses. Stable gains depend on low leverage and strict risk management. Not setting a stop-loss or setting it too wide can result in huge losses during sudden market moves.

Third, closely monitor central bank actions and US-Taiwan trade developments. These factors directly influence USD trends and are key references for short-term judgment.

Long-Term Investment Strategies

Taiwan’s economic fundamentals remain solid, with robust semiconductor exports. Over the long term, the NT dollar still exhibits relative strength, likely oscillating within the 30~30.5 range. However, long-term investors should remember a golden rule: keep foreign exchange positions within 5%-10% of total assets. The rest should be diversified into global stocks, bonds, and other asset classes to effectively manage overall portfolio risk.

Combining Taiwan stocks or bonds with multi-asset allocation can both benefit from USD appreciation and hedge against volatility in individual asset classes.

Conclusion: The Market’s “30 Yuan Curse”

Market participants have a mental benchmark: below 30 TWD per USD is seen as a buying opportunity, while above 32 is a signal to accelerate selling. Although recent USD/NTD movements have been abnormal, looking at a ten-year horizon shows that NT dollar appreciation is highly correlated with the Fed’s policy cycle.

Currently, the market is not short of trading opportunities—what’s lacking is a rational decision-making framework. Whether engaging in short-term trading or long-term asset allocation, decisions should be based on a deep understanding of fundamentals and strict risk management. Opportunities may be fleeting, but losses can be permanent.