New Taiwan Dollar surges past the 30 mark! What is the forecast for the USD exchange rate trend in 2025?

The New Taiwan Dollar Appreciated Nearly 10% in Just Two Days, Marking the Largest Single-Day Gain in 40 Years

The New Taiwan dollar has recently experienced an epic rally, shocking the market. On May 2nd, it surged 5% in a single day, rewriting the 40-year record for the largest daily increase, closing at 31.064 NT dollars; just three days later, the NT dollar broke the psychological barrier of 30, reaching intraday lows of 29.59, with a cumulative gain approaching 10%. The momentum of this surge is rare in foreign exchange history, triggering the third-largest trading volume ever in the FX market.

Reflecting back a month, the market was still anxious about the NT dollar breaking below 34 or even 35. Who would have expected such a dramatic reversal in just a few weeks?

Why Is the NT Dollar’s Rally Unique? The Most Intense Appreciation Among Asian Currencies

Looking across the entire Asian market, the performance of currencies during this rally varies significantly. The Chinese yuan, Hong Kong dollar, Japanese yen, and Singapore dollar all strengthened, with Singapore dollar up 1.41%, yen up 1.5%, and Korean won up 3.8%. However, the appreciation of the NT dollar has clearly outpaced other Asian currencies during the same period, making it the standout.

Taiwan is a typical export-driven economy, with net foreign investment accounting for as much as 165% of GDP, making it highly sensitive to exchange rate fluctuations. This abnormal appreciation has already alerted the government. Taiwan’s President and Central Bank Governor have issued statements to soothe the market, clarifying that the central bank has not intervened in the FX market and denying pressure from the US. Nonetheless, market sentiment remains volatile.

Three Major Drivers Behind This NT Dollar Appreciation Storm

First Driver: Trump’s Tariff Policies Ignited the Fuse

The US government announced a 90-day delay in implementing reciprocal tariffs, leading to two major market assumptions:

First, a global procurement wave will be triggered, benefiting Taiwan as a major manufacturing hub. Second, the IMF unexpectedly raised Taiwan’s economic growth forecast, and Taiwan’s stock market performed well, boosting buying interest in the NT dollar. Large foreign capital inflows became the initial momentum for the currency rally.

Second Driver: Limited Policy Space for the Central Bank

On May 2nd, the central bank issued an emergency statement attributing the volatility to “market expectations that the US may require trading partners to appreciate their currencies,” but avoided mentioning whether trade negotiations with the US involved currency provisions.

The US government’s “Fair and Reciprocal Trade Plan” explicitly targets “currency intervention” as a review focus. This has raised concerns that Taiwan’s central bank may find it difficult to intervene strongly in the FX market as in the past. In fact, Taiwan’s trade surplus in Q1 reached $23.57 billion, up 23% year-on-year, with the US surplus soaring 134% to $22.09 billion. If the central bank loses intervention space, the NT dollar faces enormous upward pressure.

Third Driver: Hedging Operations by Financial Institutions Trigger Chain Reactions

UBS’s latest research indicates that the 5% single-day increase on May 2nd exceeds traditional economic indicator explanations. The report suggests that large-scale FX hedging by Taiwanese insurers and exporters, combined with concentrated closing of NT dollar financing arbitrage trades, amplified exchange rate volatility.

More alarmingly, a deep report by the Financial Times revealed that Taiwanese life insurers hold $1.7 trillion in overseas assets (mainly US Treasuries) but lack sufficient hedging mechanisms. Historically, the central bank could effectively suppress NT dollar appreciation, but now it faces a dilemma—worried that intervention might be labeled as currency manipulation. This exposes structural risks within Taiwan’s financial system.

UBS warns that if financial institutions further increase their hedging ratios, it could trigger about $100 billion in dollar selling pressure (equivalent to 14% of Taiwan’s GDP), with significant potential impact.

USD Exchange Rate Outlook for 2025: How Long Can the NT Dollar Keep Rising?

The 28 Yuan Level Is Difficult to Break

Although the market expects continued pressure from Trump’s administration, most industry insiders believe that the likelihood of the NT dollar reaching 28 per USD is very low. The consensus is that appreciation potential is already limited.

Using the Real Effective Exchange Rate (REER) Index for Fair Valuation

The BIS’s REER index is normalized at 100. As of the end of March:

• US Dollar Index: approximately 113 — significantly overvalued
• NT dollar index: around 96 — relatively fair or slightly undervalued
• Yen index: only 73, Korean won only 89 — Asian export currencies are more undervalued

This suggests that the NT dollar still has room to appreciate against the yen and won, but the pace should be moderate.

( Comparison with Regional Currencies’ Gains Since the Beginning of the Year

Looking at the year-to-date performance, the NT dollar’s appreciation is not as extreme as recent days suggest:

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

This indicates that although the recent rally is impressive, the annual movement is roughly in line with regional peers.

) UBS Forecast: The Appreciation Trend Will Continue

UBS’s comprehensive assessment indicates that the NT dollar’s appreciation momentum is not over. Reasons include:

1. Valuation models show the NT dollar has shifted from moderate undervaluation to about 2.7 standard deviations above fair value
2. Derivatives market signals the “strongest appreciation expectation in five years”
3. Historical experience suggests that similar large single-day gains are rarely followed by immediate reversals

UBS advises investors not to prematurely take contrarian positions, but predicts that when the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), authorities will step up interventions to smooth volatility.

How Investors Can Capitalize on the NT Dollar Appreciation

Advanced Trading Strategies

Experienced forex traders with high risk tolerance can engage in short-term USD/TWD trading on FX platforms, capturing daily or intraday fluctuations; or hold USD assets and use derivatives like forward contracts to lock in appreciation gains.

Conservative Approaches for Beginners

Newcomers should remember: start with small amounts, avoid impulsive leverage increases, as losing control can ruin the entire position. It’s recommended to practice with demo accounts first, testing strategies in a risk-free environment. Many FX platforms offer such features, which beginners should utilize fully.

Long-term Investment Allocation

With Taiwan’s solid economic fundamentals and booming semiconductor exports, the NT dollar may fluctuate long-term within a range of 30 to 30.5 NT dollars, maintaining overall strength. However, long-term investors should strictly limit FX positions to 5-10% of total assets, diversifying remaining funds globally to mitigate risks.

Operational Tips: Use low leverage when trading USD/TWD, and always set stop-loss orders. Keep close tabs on Taiwan’s central bank moves and US-Taiwan trade developments, as both directly influence the exchange rate. Combining FX trading with Taiwan stocks or bonds can help maintain overall portfolio risk at manageable levels despite volatile FX movements.

Review: USD/TWD Exchange Rate Over the Past Decade

2014 to 2024 Exchange Rate Trajectory

Over the past decade (October 2014 to October 2024), USD/TWD has fluctuated between 27 and 34, with a volatility of about 23%, relatively low compared to global currencies.

In comparison, USD/JPY has a volatility of up to 50% (99 to 161), twice that of the NT dollar, indicating relative stability of the NT exchange rate.

How Federal Reserve Decisions Influence the NT Dollar

The USD/TWD rate is primarily driven by the Federal Reserve, not Taiwan’s central bank. Changes in US interest rate policies directly impact the NT dollar:

• Post-2008 financial crisis: Fed launched three rounds of quantitative easing, capital flowed into emerging markets, strengthening the NT dollar
• 2013 QE taper announcement: US interest rates rose, capital returned to the US, USD/TWD climbed from lows to 33
• 2020 pandemic outbreak: Fed expanded balance sheet from $4.5 trillion to $9 trillion, rates fell to zero, USD depreciated, NT dollar surged to near 27
• Post-2022 inflation surge: aggressive rate hikes by Fed, USD rebounded, exchange rate hovered around 32
• September 2024: Fed started cutting rates, exchange rate retreated to around 32

Key Market Psychological Levels

Industry consensus: 30 is the “most widely recognized benchmark.” Most believe that below 30 USD per dollar is a good entry point, above 32 should be considered profit-taking. For long-term FX investors, these levels serve as reference points.