New Taiwan Dollar Appreciation Wave: Comprehensive Analysis! Will the US Dollar Drop Further? 2025 Exchange Rate Forecast and Investment Strategies

The New Taiwan Dollar Breaks the 30 Yuan Psychological Barrier, The US Dollar Faces Depreciation Pressure

Recently, the New Taiwan Dollar has experienced an unprecedented rapid appreciation over decades. According to market data, on May 2nd, it rose by 5% in a single day, marking the largest single-day increase in 40 years, with the exchange rate closing at 31.064 yuan. Subsequently, on May 5th, it continued its upward trend, gaining another 4.92%, and during the trading session, it sharply broke through the critical 30 yuan level, reaching a high of 29.59 yuan. This wave of appreciation is quite rare among Asian currencies.

In just two trading days, the New Taiwan Dollar has appreciated nearly 10%, rewriting multiple historical records and triggering the third-highest trading volume in the foreign exchange market in history. Compared to other Asian currencies—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%—the appreciation of the New Taiwan Dollar is clearly outstanding.

It is worth noting that from the beginning of this year to early April, the New Taiwan Dollar was still in a depreciating state. Such a dramatic turnaround within a few weeks deeply reflects the rapid changes in the international political and economic landscape.

Three Core Factors Driving the US Dollar Depreciation and the New Taiwan Dollar Appreciation

Trade policy adjustments become the main driving force

The new US government announced tariff policy adjustments and a 90-day delay in implementation, immediately shifting market expectations. First, global buyers began to concentrate their procurement, and Taiwan, as an important export base, will benefit in the short term, providing strong support for the New Taiwan Dollar exchange rate. Second, the International Monetary Fund (IMF) unexpectedly raised Taiwan’s economic growth forecast, coupled with outstanding performance in the Taiwan stock market, further attracting large inflows of foreign capital, forming the initial momentum to push the Taiwan dollar higher.

The central bank’s policy faces a complex situation

Against the backdrop of the rapid appreciation of the New Taiwan Dollar, Taiwan’s central bank faces a dilemma. Although the central bank attributes the exchange rate volatility to “market expectations of currency appreciation,” it consistently avoids directly responding to questions about whether US-Taiwan negotiations involve exchange rate clauses.

The key point is that the US government’s “Fair and Reciprocal Trade Plan” explicitly highlights “intervention in the exchange rate” as a focus of review. This means that if Taiwan’s central bank intervenes forcefully in the forex market as in the past, it could be labeled as a “currency manipulator” by the US. Considering Taiwan’s trade surplus reached $23.57 billion in the first quarter (up 23% year-on-year), and the US trade surplus with Taiwan surged by 134% to $22.09 billion, the New Taiwan Dollar faces enormous appreciation pressure without central bank support.

Financial institutions’ concentrated hedging operations amplify volatility

According to the latest UBS research, the 5% single-day appreciation of the New Taiwan Dollar on May 2nd has exceeded the explanatory scope of traditional economic indicators. In-depth analysis shows that large-scale forex hedging operations by Taiwanese insurers and exporters, along with concentrated closing of New Taiwan Dollar financing arbitrage trades, jointly caused this currency shock.

Particularly noteworthy is UBS’s warning that if insurers and exporters increase their hedging ratios during a correction of the New Taiwan Dollar, simply restoring forex hedging scales to normal levels could trigger about $100 billion in US dollar selling pressure—equivalent to 14% of Taiwan’s GDP. This potential risk cannot be ignored.

The UK’s Financial Times further pointed out that Taiwanese life insurers hold overseas assets worth up to $1.7 trillion (mainly US Treasury bonds), and have long lacked sufficient currency hedging measures. The main reason is that “in the past, the central bank could effectively suppress significant appreciation of the New Taiwan Dollar,” but the policy environment has now changed. Central bank Governor Yang Jinlong subsequently clarified this analysis, emphasizing that compared to large exporters, the insurance industry’s increased operations are relatively limited.

Will the US Dollar Fall Further? Future Outlook of USD/NTD Exchange Rate

The 28 Yuan Level Is Difficult to Break

Although the market generally expects the US government to pressure the New Taiwan Dollar to continue appreciating, industry insiders generally judge that the possibility of the New Taiwan Dollar reaching 28 per USD is very low. In other words, the current appreciation space is limited.

Valuation Index to Assess Rationality

The Bank for International Settlements (BIS)’s real effective exchange rate index (REER) is an important tool for evaluating the reasonable level of a currency. The index uses 100 as a baseline; above 100 indicates potential overvaluation, below 100 suggests undervaluation.

As of the end of March:

• US dollar index around 113 → clearly overvalued
• New Taiwan Dollar index around 96 → reasonably undervalued
• Japanese yen index only 73, Korean won index 89 → major Asian export currencies all show undervaluation

These data indicate that the New Taiwan Dollar still has room to appreciate.

Cross-comparison with other Asian currencies

If the observation period is extended to from the beginning of the year to now, the appreciation of the New Taiwan Dollar is roughly in line with other major Asian currencies:

• TWD up 8.74%
• JPY up 8.47%
• KRW up 7.17%

Although the recent appreciation rate of the New Taiwan Dollar is faster, from a longer-term perspective, its gains are synchronized with regional currencies.

UBS’s Forecast Highlights

UBS’s latest report states that despite the recent strong rally, multiple indicators suggest the appreciation trend will continue:

First, valuation models show the New Taiwan Dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; second, the forex derivatives market shows the “strongest appreciation expectations in five years”; third, historical experience indicates that after similar large single-day increases, immediate correction is unlikely.

UBS advises investors not to prematurely reverse positions, but expects that when the trade-weighted index of the New Taiwan Dollar rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention to smooth volatility.

Investment Strategies to Capitalize on the US Dollar Depreciation

Advanced Operations for Experienced Traders

For those with forex trading experience and high risk tolerance, two strategies can be adopted: first, short-term trading of USD/TWD or related currency pairs on forex platforms to capture intraday or short-term volatility; second, if holding US dollar assets, using derivatives such as forward contracts to hedge and lock in gains from TWD appreciation in advance.

Conservative Entry for Beginners

New traders wanting to participate in recent volatility should remember several principles: first, start with small amounts to test the waters; avoid impulsive increases, as losing control of the mindset can lead to quick losses. Platforms like Mitrade are suitable for beginners to practice small-scale short-term trading. It’s recommended to open demo accounts first to test strategies, and only invest real funds after confirming the trading logic.

Additionally, set stop-loss points to protect capital, and keep an eye on Taiwan’s central bank movements and US-Taiwan trade developments, as these factors directly influence exchange rate trends.

Long-term Investment Allocation Suggestions

Long-term investors should recognize that Taiwan’s economic fundamentals are solid, with sustained strong semiconductor exports. The TWD may fluctuate within the 30 to 30.5 range. Over the long term, the TWD remains relatively strong.

The key is to keep forex positions within 5%-10% of total assets, diversify remaining funds into other global assets to reduce overall portfolio risk. It’s recommended to operate USD/TWD with low leverage, earning steady forex spreads. Combining investments in Taiwan stocks or bonds can help maintain overall portfolio stability even amid significant exchange rate fluctuations.

Historical Perspective: Review of USD/NTD Trends Over the Past Decade

Over the past ten years (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with an amplitude of about 23%, showing relatively moderate volatility compared to other global currencies. In contrast, the USD/JPY has experienced a 50% swing (from 99 to 161), twice that of the TWD.

Since interest rates in Taiwan have limited fluctuations, the exchange rate movements mainly depend on Fed policy adjustments. For example, from 2015 to 2018, facing China’s stock market crash and the European debt crisis, the Fed slowed its quantitative tightening and restarted easing, leading to a strengthening of the TWD. After 2018, the Fed began a rate hike cycle, but the COVID-19 pandemic in 2020 suddenly changed everything.

Between 2020 and 2022, the Fed expanded its balance sheet from $4.5 trillion to $9 trillion, and interest rates were cut to zero, causing the US dollar to depreciate, with the TWD briefly appreciating to 27 per USD. However, after 2022, US inflation spiraled out of control, prompting the Fed to rapidly hike interest rates, causing the dollar to surge again, and the exchange rate to rebound within a narrow range.

After the Fed’s rate cut cycle began in September 2024, USD/NTD again retreated to around 32.

Looking back at the three rounds of quantitative easing since the 2008 financial crisis: QE started after 2008, slowed down from December 2013, leading to rising US interest rates and capital flowing back to the US, pushing USD/NTD from lows to 33. Only after the Fed ended its high-interest cycle and began cutting rates recently did the exchange rate undergo a new adjustment.

Investment Decision Reference Standards

Based on ten years of data and current conditions, a “collective consensus” has formed: 30 yuan is a psychological barrier. Most investors believe that when 1 USD/NTD is below 30, it’s worth buying; above 32, it’s time to consider selling. For long-term forex investments, this can serve as a core reference point.

Whether the US dollar will fall further depends on the Fed’s future policy direction and Taiwan’s central bank’s policy space. In the short term, the appreciation trend of the TWD may continue, but the central bank’s tolerance limit is roughly around 30 yuan. Exceeding this line, the authorities may increase intervention. Investors should formulate strategies based on rational analysis and their own risk tolerance.