The USD/TWD trend reverses! From a depreciation crisis to an appreciation opportunity, how should investors respond in 2025?

Dramatic Reversal of USD/TWD Exchange Rate

Last month, the market was still worried that the New Taiwan Dollar (NTD) would break through 34 or even 35 against the US dollar. Unexpectedly, within just 30 days, the situation has undergone a 180-degree turn. The USD/TWD trend has experienced a remarkable reversal — in early May, the NTD appreciated nearly 10% against the dollar over two trading days, setting the largest single-day gain in 40 years, and even broke through the psychological 30 mark during trading, reaching a high of 29.59.

This sharp appreciation is rare even across the entire Asian currency market. During the same period, the Japanese Yen rose by 1.5%, the Korean Won surged by 3.8%, and the Singapore Dollar appreciated by 1.41%. In comparison, the performance of the NTD is truly distinctive. In fact, from the beginning of the year to early April, the USD/TWD was still in a depreciating trend, but within just a few weeks, it reversed and appreciated by over 8%, a reversal strong enough to shake the entire financial market.

Deep Analysis of the Three Drivers Behind USD/TWD Appreciation

Policy Expectations Ignite the Appreciation Fire

After President Trump’s administration announced a 90-day delay in implementing tariffs, two major expectations emerged in the market. First, a global procurement wave is anticipated, with Taiwan, as a typical export-oriented economy (with net foreign investment accounting for up to 165% of GDP), expected to benefit in the short term, providing strong support for the USD/TWD trend. Second, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with impressive stock market performance, leading to a frenzy of foreign capital inflows into the NTD market.

Limited Central Bank Policy Space Exerts Appreciation Pressure

President Trump’s “Fair and Reciprocal Trade Plan” explicitly listed “currency intervention” as a focus of review, directly restricting the central bank’s policy maneuvering space. Taiwan’s trade surplus in the first quarter reached USD 23.57 billion (up 23% year-on-year), with the US trade surplus soaring by 134% to USD 22.09 billion. Losing traditional intervention tools, the NTD faces enormous upward pressure, and the USD/TWD trend has thus lost its previous “stabilizer.”

Chain Reaction of Financial Institutions’ Hedging Amplifies Volatility

UBS research reports reveal that the abnormal volatility in May exceeds what traditional economic indicators can explain. Taiwanese insurers hold overseas assets worth up to USD 1.7 trillion (mainly US Treasuries), with long-term insufficient hedging against exchange rate risk. When the central bank may no longer be able to suppress the NTD’s appreciation as effectively as before, panic hedging operations by insurers and exporters concentrate on closing positions, and NTD financing arbitrage trades collapse, collectively triggering the third-largest trading volume in history.

UBS specifically warns that if foreign exchange hedging scales return to trend levels, it could trigger USD selling pressure of about USD 100 billion (equivalent to 14% of Taiwan’s GDP), a potential risk that warrants attention.

Rational Evaluation and Reasonable Expectations for USD/TWD Trend

How High Can the Appreciation Go?

Most industry insiders believe that it is highly unlikely for the NTD to appreciate to 28 per USD. The key indicator for assessing exchange rate fairness—the BIS Real Effective Exchange Rate (REER)—shows that as of the end of March, the USD index was about 113, indicating a significant overvaluation, while the NTD index remains around 96, in a reasonably undervalued state. In comparison, other Asian export currencies are more undervalued, with the Yen and Won indices at 73 and 89, respectively.

Regional Currencies Overall Appreciating

If we extend the observation period from the recent abnormal volatility to from the beginning of the year to now, we find that the performance of regional currencies is quite similar:

• NTD appreciated by 8.74%
• Yen appreciated by 8.47%
• Won appreciated by 7.17%

This indicates that the USD/TWD movement is not an isolated phenomenon but part of a regional currency appreciation trend.

UBS Forecast: Appreciation Momentum Will Continue

UBS’s analysis from multiple dimensions suggests that the NTD’s appreciation trend will persist. First, valuation models show that the NTD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher. Second, the foreign exchange derivatives market indicates the “strongest appreciation expectation in five years.” Furthermore, historical experience shows that after similar large single-day increases, immediate retracement is unlikely.

UBS advises investors not to prematurely reverse positions, but when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth out volatility.

Strategies for Different Types of Investors

Aggressive Strategies for Forex Traders

If you have experience in forex trading and a higher risk tolerance, you can directly trade USD/TWD or related currency pairs on forex platforms, capturing short-term or intraday volatility opportunities over a few days. If you already hold USD assets, you can use derivatives such as forward contracts to lock in the appreciation gains of the TWD.

Conservative Approach for Novice Investors

For beginners wanting to seize recent volatility opportunities, it’s essential to follow several principles: start with small amounts to test the waters, and never impulsively increase positions. It’s advisable to open small short-term trading accounts on professional platforms, practice with demo accounts to test your strategies, and always set stop-loss points to protect your capital.

Balanced Long-term Asset Allocation

From a long-term perspective, Taiwan’s economic fundamentals are stable, and semiconductor exports remain strong. The NTD may fluctuate within the 30 to 30.5 range, maintaining relative strength over time. However, long-term forex positions should be controlled within 5%-10% of total assets, with remaining funds diversified into other global assets to reduce risk.

Using low leverage to operate USD/TWD, combined with investments in Taiwan stocks or bonds, can effectively balance overall portfolio volatility. The key is to stay attentive to central bank signals and the latest developments in US-Taiwan trade, as these will directly influence the exchange rate trend.

A Decade Perspective: Understanding the Historical Logic of USD/TWD Movement

Looking back over the past decade (October 2014 to October 2024), the USD/TWD exchange rate has oscillated between 27 and 34, with a volatility of 23%, relatively small compared to global currencies. The Yen, as a traditional safe-haven currency, has experienced a volatility of up to 50% (ranging from 99 to 161 against USD), twice that of the TWD.

The key factor determining USD/TWD movement is actually the Federal Reserve’s policy, not Taiwan’s central bank:

2015–2018: China stock market crash and European debt crisis triggered, US began easing quantitative tightening, initiating a new round of easing, and the TWD strengthened accordingly.

Post-2018: US interest rate hike cycle started, strengthening the dollar.

2020–2022: After the pandemic outbreak, the Fed’s balance sheet expanded from USD 4.5 trillion to USD 9 trillion, with rates dropping to zero, leading to USD depreciation and the TWD soaring to 27 per USD.

Post-2022: Inflation spiraled out of control, prompting the Fed to rapidly hike interest rates, causing the dollar to surge, and USD/TWD moved to higher levels with narrow fluctuations.

September 2024: The Fed ended its high-interest cycle and began cutting rates, bringing the exchange rate back to around 32.

Historical patterns tell us that most investors have a “threshold”—buy USD below 1:30, consider selling above 32. This psychological barrier is very useful for understanding the long-term trend of USD/TWD.

Summary: Seizing Investment Opportunities in USD/TWD

The sharp fluctuations in USD/TWD are both risks and opportunities. The key is to choose strategies aligned with your risk appetite: short-term traders should strictly set stop-loss points; long-term investors should build diversified asset allocations; conservative investors can start with demo accounts to accumulate experience.

Regardless, continuous attention to central bank signals, US-Taiwan trade developments, and Fed movements will determine the future direction of USD/TWD.