The Taiwanese dollar's strong rise breaks through the 30 mark, and the USD exchange rate trend chart reveals the key to future fluctuations! A must-read analysis for investors in 2025

The NT dollar has recently experienced an astonishing rally, soaring nearly 10% in just two trading days. Not only has it set a 40-year record for the largest single-day increase, but it has also broken the important psychological barrier of 30 yuan. What is the root cause of this exchange rate fluctuation? What signals does the USD exchange rate chart reveal? And how should investors respond?

The NT dollar’s appreciation is remarkable, standing out among Asian currencies

On May 2, the NT dollar against the US dollar surged by 5% in a single day, closing at 31.064 yuan, rewriting a 15-month high. After the weekend market closure, on May 5, the NT dollar continued to strengthen by 4.92%, even breaking the key psychological level of 30 yuan during trading, reaching a high of 29.59 yuan.

Compared to other Asian currencies during the same period, the NT dollar’s appreciation clearly leads. The Singapore dollar rose by 1.41%, the Japanese yen by 1.5%, and the Korean won by 3.8%. However, the rapid appreciation of the NT dollar is unique among Asian currencies.

As of now, in just one month, the NT dollar has reversed from a 1% depreciation to over 10% appreciation. This dramatic market shift has attracted significant attention. Taiwan, as a typical export-oriented economy with net foreign investment accounting for 165% of GDP, is particularly sensitive to exchange rate fluctuations. The government quickly responded; Taiwan President Lai Ching-te issued a five-point statement to reassure the market, and Central Bank Governor Yang Chin-tung held a press conference to clarify that the central bank has not intervened in the currency market.

Uncovering the three main drivers of the NT dollar’s appreciation

Trump’s tariff policies ignited the fuse

U.S. President Trump announced a 90-day delay in implementing reciprocal tariffs, leading to two market expectations. First, a global procurement wave is anticipated, which could benefit Taiwan’s exports in the short term and provide strong support for the NT dollar exchange rate. Second, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with impressive performance in the Taiwan stock market. These positive news flows have led to a frenzy of foreign capital inflows, becoming the initial driving force behind the NT dollar’s rise.

The central bank faces a dilemma

In an emergency statement, the central bank attributed the currency volatility to “market expectations that the US may request trading partners to appreciate their currencies,” but did not directly address concerns about whether US-Taiwan tariff negotiations involve exchange rate clauses. In fact, the Trump administration’s “Fair and Reciprocal Trade” plan explicitly emphasizes “currency intervention” as a review focus, heightening market concerns that the central bank’s room for intervention is limited.

Taiwan’s trade surplus in the first quarter reached US$23.57 billion, a 23% increase year-on-year, with the US surplus soaring by 134% to US$22.09 billion. Without central bank intervention, the NT dollar indeed faces substantial upward pressure.

Financial industry hedging amplifies volatility

UBS’s latest research report indicates that the abnormal fluctuations on May 2 have exceeded what traditional economic indicators can explain. The report analyzes that large-scale currency hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of NT dollar financing arbitrage trades, jointly caused this exchange rate movement.

UBS specifically warns that when the NT dollar retraces, insurers and exporters may further increase their hedging ratios. Simply restoring foreign exchange hedging/deposits to trend levels could trigger about US$100 billion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP. This potential risk warrants close attention.

The economic signals behind the USD exchange rate chart

An important indicator for assessing exchange rate fairness is the Real Effective Exchange Rate Index (REER) compiled by the Bank for International Settlements (BIS). The index uses 100 as a baseline; values above 100 suggest the currency may be overvalued, while below 100 indicates undervaluation risk.

As of the end of March, BIS data shows the US dollar index at about 113, indicating a significant overvaluation; the NT dollar index remains around 96, in a reasonably undervalued zone. Notably, currencies of major Asian export countries are even more undervalued, with the Japanese yen and Korean won indices at 73 and 89, respectively.

Extending the observation period from the recent abnormal volatility to the start of the year reveals that the cumulative appreciation of the NT dollar against the US dollar is roughly in line with regional peers. The NT dollar has appreciated by 8.74%, the Japanese yen by 8.47%, and the Korean won by 7.17%. Essentially, everyone is rising.

Future outlook for the NT dollar: Will it continue to climb?

The market generally expects the U.S. government to pressure the NT dollar to continue appreciating, but most industry insiders believe that it is unlikely for the NT dollar to reach 28 per US dollar.

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

UBS advises investors not to prematurely reverse their positions, but expects that when the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention efforts to stabilize the exchange rate.

How to seize investment opportunities from the NT dollar’s appreciation

Experienced forex traders’ strategies: You can directly trade USD/TWD or related currency pairs on forex platforms, capturing short-term fluctuations over a few days or even within the same day. If you already hold USD assets, you can use derivatives like forward contracts to hedge and lock in the appreciation gains.

For novice investors: Start with small amounts to test the waters. Avoid impulsively adding more, as a sudden shift in sentiment could end your position quickly. Beginners should use low leverage when trading USD/TWD and always set stop-loss points to protect themselves. Many forex platforms offer demo accounts—practice trading with virtual funds to test your strategies. Keep a close eye on the actions of Taiwan’s central bank and the latest developments in US-Taiwan trade, as these will directly influence exchange rate movements.

Long-term investment planning: Taiwan’s economy remains solid, with strong semiconductor exports. The NT dollar may oscillate between 30 and 30.5 yuan in the near term, maintaining relative strength. However, for long-term investments, it’s advisable to keep forex positions within 5%-10% of total assets. The rest should be diversified into other global assets to manage risk. Don’t put all your eggs in one basket—consider investing in Taiwanese stocks or bonds to diversify and reduce overall portfolio risk amid currency fluctuations.

Reviewing the past decade of USD exchange rate trends to understand the NT dollar’s future positioning

Over the past ten years (October 2014 to October 2024), the NT dollar against the US dollar has fluctuated between 27 and 34, a 23% range, which is relatively stable compared to global currencies. The Japanese yen’s fluctuation has been much larger—up to 50% (from 99 to 161), twice that of the NT dollar.

The NT dollar’s interest rate changes have been modest, so its movements are mainly driven by the Federal Reserve’s rate hikes and cuts. During 2015–2018, amid China’s stock market crash and the European debt crisis, the Fed slowed its QT and continued easing, leading to a strengthening of the NT dollar. After 2018, as the US economy improved, the Fed began raising interest rates, but the COVID-19 pandemic hit in 2020, prompting the Fed to double its balance sheet in a short period.

From 2020 to 2022, the US balance sheet grew from US$4.5 trillion to US$9 trillion, with rates dropping to zero, causing the dollar to weaken and the NT dollar to appreciate to around 27 per US dollar. After 2022, due to runaway US inflation, the Fed rapidly raised interest rates, causing the dollar to surge and fluctuate within a narrower range around 27.

In September 2024, after the Fed ended its high-interest cycle and began cutting rates, the exchange rate returned to around 32. The Fed launched three rounds of quantitative easing after the 2008 financial crisis; in December 2013, it announced plans to taper QE3, leading to rising US interest rates and capital flowing back to the US, pushing the USD/TWD exchange rate from its lows in 2013 up to 33.

Overall, the movement of the NT dollar against the US dollar is mainly determined by the Fed’s rate policies, not the Taiwan central bank. However, market consensus often regards the 30 yuan level as a key benchmark: most believe that USD below 30 can be bought, above 32 should be sold. For long-term currency investment, this can serve as a reference point.