New Taiwan Dollar surges below 30! In-depth analysis of the 2025 USD exchange rate trend and investment strategies

The recent appreciation of the New Taiwan Dollar has been astonishing, with a surge of nearly 10% over just two trading days, setting the largest single-day gain record in 40 years. On May 2nd, the USD/TWD exchange rate skyrocketed by 5%, followed by another increase of 4.92% on May 5th, breaking the psychological barrier of 30 and reaching 29.59. Where did this intense volatility originate? How will the US dollar exchange rate trend develop in the future? This article will analyze from multiple perspectives and provide practical investment strategy suggestions.

From Fear of Depreciation to Strong Surge: Why Did the TWD Exchange Rate Suddenly Turn?

Chain reaction triggered by policy expectations

The wave of appreciation was triggered by US policy adjustments. When the US announced a 90-day delay in tariffs implementation, two major expectations emerged: a short-term boost for Taiwan’s exports driven by global procurement waves, and upward revisions of Taiwan’s economic growth forecasts by international organizations. The Taiwan stock market performed well, and these positive news led to a frenzy of foreign capital inflows.

However, market focus shifted to the hidden exchange rate issues behind these policies. The new US policy explicitly listed “currency intervention” as a review focus, raising concerns that the central bank might find it difficult to intervene strongly in the forex market as in the past. Taiwan’s trade surplus in Q1 reached USD 23.57 billion, up 23% year-over-year, with the US trade surplus soaring 134% to USD 22.09 billion. If the central bank cannot intervene, the New Taiwan Dollar faces significant appreciation pressure.

Cumulative effects of structural market factors

UBS’s latest research report indicates that the single-day surge on May 2nd exceeded what traditional economic indicators could explain. The report analyzes that large-scale hedging operations by Taiwanese insurers and corporations, along with concentrated closing of NTD financing arbitrage trades, jointly drove this abnormal movement.

More importantly, UBS warns that when the exchange rate retraces, insurers and exporters may further increase their hedging ratios. Restoring foreign exchange hedging to trend levels alone could trigger about USD 1 trillion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP.

The Financial Times further analyzed that Taiwanese life insurers hold USD 1.7 trillion in overseas assets, mainly US Treasuries, but have long lacked sufficient hedging measures. In the past, the central bank could effectively suppress sharp TWD appreciation, but now faces a dilemma—worried that intervention might be labeled as currency manipulation. However, the central bank governor later denied this, emphasizing that operations by large exporters and insurers have not significantly increased.

Technical and psychological resonance

Besides policy and structural factors, market sentiment and technical interactions have amplified volatility. Short-term sharp appreciation naturally attracts trend traders, further increasing fluctuations.

USD Exchange Rate Outlook: Will the TWD Continue to Rise?

How to interpret key valuation indicators

A crucial tool for assessing exchange rate fairness is the Real Effective Exchange Rate (REER) index compiled by the Bank for International Settlements, with 100 as the equilibrium value. As of the end of March:

• USD Index is about 113, indicating a significant overvaluation;
• TWD index remains around 96, in a reasonably undervalued state.
• Major Asian export currencies are even more undervalued, with JPY and KRW indices at 73 and 89 respectively.

From this perspective, the TWD still has room to appreciate, but the possibility of dropping below 28 is minimal. Most industry insiders believe the TWD will continue to appreciate but gradually within the central bank’s tolerance limits.

Long-term balanced view

Looking at the period from the start of the year to now, the appreciation of the TWD is roughly in line with regional currencies:

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

This indicates that although the recent surge has been intense, from a longer-term perspective, the TWD’s movement aligns with overall Asian currency trends.

UBS’s key forecasts

UBS’s research indicates that valuation models show the TWD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; FX derivatives markets reflect the “strongest appreciation expectation in five years”; historical experience suggests that after a large single-day surge, immediate retracement is unlikely.

UBS expects that when the trade-weighted index of the TWD rises another 3% toward the central bank’s tolerance limit, official intervention may intensify to stabilize volatility. Therefore, investors should avoid premature counter-trend operations but prepare for possible policy interventions.

Review of USD Exchange Rate Trends Over the Past Decade

From October 2014 to October 2024, the USD/TWD exchange rate fluctuated between 27 and 34, with a volatility of about 23%, relatively small compared to global currencies. In contrast, the JPY experienced a 50% fluctuation (from 99 to 161), twice that of the TWD.

The TWD’s interest rate changes are minor; its exchange rate movements are mainly influenced by Fed policies. From 2020 to 2022, the US balance sheet expanded from USD 4.5 trillion to USD 9 trillion, with interest rates dropping to zero, causing the USD to depreciate and the TWD to surge to 27 per USD. After 2022, US inflation spiraled out of control, prompting the Fed to rapidly hike rates, causing the USD to rebound and the exchange rate to rise back to around 32. Until September 2024, when the Fed ended its high-interest cycle and began cutting rates, the exchange rate retreated again.

Most investors have a “trading scale”: below 1:30 is considered a buy point, above 1:32 a sell point. This understanding has been validated over many years and is relatively reliable.

Investment Strategies and Practical Recommendations

Short-term traders’ approach

If you have forex trading experience and high risk tolerance, you can participate directly in short-term fluctuations of USD/TWD or related currency pairs. Use derivatives like forward contracts to lock in appreciation gains; also set stop-loss points to protect capital.

Safe route for beginners

For new forex investors, it’s recommended to start with small amounts, avoiding impulsive increases. Many trading platforms offer demo accounts—practice with virtual funds first to test strategies. Once confident, then proceed with real capital.

The key steps are: open a demo account → test trading strategies → confirm effectiveness → enter small positions → closely monitor Taiwan’s central bank moves and US-Taiwan trade developments.

Long-term portfolio allocation

With Taiwan’s solid economic fundamentals and booming semiconductor exports, the TWD may remain relatively strong in the 30–30.5 range. But for long-term investments, keep forex exposure within 5%–10% of total assets. The remaining funds should be diversified into other global assets to effectively manage risk.

It’s advisable to operate USD exposure with low leverage, combined with investments in Taiwan stocks or bonds. Even if exchange rate fluctuations are large, the overall portfolio risk can be kept within manageable limits.

Conclusion

The recent appreciation of the New Taiwan Dollar has indeed exceeded expectations, but from valuation, policy expectations, and historical comparisons, this surge has rational underpinnings. The key is to recognize the complexity of the current forex environment: policy uncertainties, structural hedging needs, market sentiment resonance, and other factors may still cause short-term volatility.

Investors should fully understand the risks and choose appropriate strategies based on their risk appetite, while continuously monitoring policy trends and economic data. The future development of USD exchange rate movements may have no absolute answer, but through rational analysis and strict risk management, we can seize investment opportunities within the volatility.