New Taiwan Dollar appreciation wave is coming! USD exchange rate trend prediction: the key turning point in 2024

The New Taiwan Dollar has recently shown an astonishing upward trend, appreciating nearly 10% over just two trading days and successfully breaking through the psychological barrier of 30 yuan. What does this wave of exchange rate movement truly represent? What is the future direction of the USD exchange rate forecast? How should investors respond to this massive currency market upheaval? This article will analyze the economic drivers behind the TWD’s appreciation, interpret the USD exchange rate trend, and provide practical trading suggestions for investors.

TWD’s Rally Exceeds Expectations! From Devaluation Threat to Appreciation Miracle

A month ago, the market was still worried that the New Taiwan Dollar might break below 34, or even 35 yuan. However, market sentiment suddenly reversed. The largest single-day gain in 40 years followed—TWD against USD appreciated 5% in one day, closing at 31.064 yuan, hitting a 15-month high. Even more astonishing, the next trading day saw a further 4.92% appreciation, with intraday prices breaking through the 30 yuan mark, dipping as low as 29.59 yuan.

How rare is this rally? Looking across Asian currency markets, while currencies like the RMB, HKD, JPY, and SGD also appreciated during the same period, their gains were far less than that of the TWD. The Singapore dollar rose 1.41%, the Japanese yen 1.5%, and the Korean won 3.8%. Meanwhile, the TWD soared at an unprecedented pace in Asia, creating the third-largest trading volume record in the history of the foreign exchange market.

For Taiwan’s export-driven economy, exchange rate fluctuations have profound impacts. Taiwan’s net outward investment accounts for as much as 165% of GDP, making the economy highly sensitive to exchange rate movements. In response to such volatility, government agencies acted swiftly: the president issued statements to stabilize the market, and the central bank held a press conference to clarify its policy stance. Nevertheless, market sentiment continues to oscillate.

Three Major Drivers of the USD Exchange Rate Forecast

US Tariff Policies Ignite the Fuse

The Trump administration’s reciprocal tariff policies became the key trigger for this rally. The announcement to delay tariffs for 90 days immediately sparked two market expectations:

• A wave of global procurement is about to commence, with Taiwan, as a major export country, benefiting in the short term and providing strong support for the TWD;
• The International Monetary Fund unexpectedly raised Taiwan’s economic growth forecast, coupled with the impressive performance of Taiwan’s stock market. These positive news attracted continuous foreign capital inflows, becoming the initial driving force behind the TWD’s appreciation.

The Central Bank’s Dilemma

In its statement on May 2, the official attributed the exchange rate movements to “market expectations that the US may request trading partners to appreciate their currencies,” avoiding the more critical issue—whether US-Taiwan trade negotiations involve currency clauses.

In reality, the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a key review item, putting Taiwan’s central bank in a dilemma: its previous strong intervention strategies could trigger accusations of “currency manipulation” from the US.

Considering Taiwan’s trade surplus of USD 23.57 billion in Q1—up 23% year-on-year, with the US surplus surging 134% to USD 22.09 billion—the absence of traditional central bank support has indeed put enormous upward pressure on the TWD.

Chain Reactions in Financial Markets

UBS’s latest research indicates that a single-day appreciation of 5% far exceeds what traditional economic indicators can explain. Aside from sentiment factors, large-scale hedging operations by Taiwanese insurers and exporters, along with concentrated closing of TWD financing arbitrage trades, have collectively amplified this volatility.

UBS warns that if the TWD experiences a correction, insurers and exporters may further increase their hedging ratios. Restoring foreign exchange hedging to historical levels could trigger USD selling pressure of about USD 1 trillion, equivalent to 14% of Taiwan’s GDP, posing significant risks.

The Financial Times’ analysis points directly to the core issue—Taiwan’s life insurance industry holds as much as USD 1.7 trillion in overseas assets (mainly US Treasuries), and has long lacked sufficient currency hedging tools. Historically, the central bank could effectively suppress TWD appreciation, but now faces policy dilemmas. The central bank governor later rebutted, emphasizing that life insurers’ operations are not as aggressive as reports suggest.

USD Exchange Rate Forecast: Can It Break Through 28 Yuan?

Realistic Assessment of Appreciation Potential

Market expectations are that the Trump administration will continue to pressure the TWD to appreciate, but the specific magnitude remains uncertain. Industry consensus suggests that the possibility of the TWD reaching 28 yuan is very low.

BIS Index Insights

A key tool for assessing exchange rate fairness is the real effective exchange rate (REER) index, with 100 as the baseline equilibrium. As of the end of March:

• USD REER is approximately 113, indicating significant overvaluation;
• TWD REER remains around 96, in a reasonably undervalued zone.
  Compared to other Asian export currencies, the undervaluation is even more pronounced—JPY REER is only 73, KRW 89.

Regional Currency Movements

Extending the observation period from recent abnormal fluctuations to year-to-date, the appreciation of the TWD is roughly in line with its regional peers:

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

Although the TWD has appreciated fastest recently, long-term perspective shows its performance remains synchronized with regional trends.

UBS’s Appreciation Outlook

UBS believes the TWD’s upward trend will continue, citing reasons such as: valuation models indicating the TWD has shifted from moderate undervaluation to a fair value exceeding the mean by 2.7 standard deviations; FX derivatives markets reflecting the “strongest appreciation expectation in five years”; and historical experience suggesting that large single-day gains are unlikely to reverse immediately.

The bank forecasts that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), official interventions may intensify to smooth out volatility.

Investment Strategies to Capitalize on USD Exchange Rate Fluctuations

For Experienced Forex Traders

You can directly trade USD/TWD or related currency pairs on forex platforms to capture short-term movements over several days or even intraday; if you already hold USD assets, consider using forward contracts or other derivatives for hedging, locking in appreciation gains.

For Novice Investors Seeking Stability

Beginners should adhere to key principles: start with small amounts to test the waters, avoid impulsive leverage increases; many platforms offer demo accounts to practice and verify trading strategies.

Always monitor the policies of Taiwan’s central bank and the latest developments in US-Taiwan trade negotiations, as these factors will directly influence the exchange rate trajectory. Use low leverage when trading USD/TWD and set stop-loss orders to protect positions.

Long-term Asset Allocation Advice

Given Taiwan’s solid economic fundamentals and robust semiconductor exports, the TWD may oscillate between 30 and 30.5 yuan in the long run, maintaining a relatively strong position. However, for long-term investments, it’s advisable to limit foreign exchange exposure to 5-10% of total assets, with the remaining diversified across global asset classes to reduce overall portfolio risk.

Consider pairing currency strategies with investments in Taiwanese stocks or bonds. Even if exchange rate volatility intensifies, overall assets can remain relatively stable.

A Decade of Historical Trends: The Long-term Logic of TWD Exchange Rate

Past Ten Years’ Fluctuation Range

From October 2014 to October 2024, the TWD/USD exchange rate has fluctuated between 27 and 34 yuan, with a volatility of about 23%, placing it among relatively stable major currencies globally. In comparison, the JPY/USD has experienced a 50% fluctuation (from 99 to 161), twice that of the TWD.

Main Drivers of TWD Fluctuations

Since the TWD’s interest rate changes are limited, its movements are primarily driven by US Federal Reserve policies rather than Taiwan’s central bank.

Between 2015 and 2018, turbulence in Chinese stock markets and the European debt crisis prompted the Fed to slow down its quantitative tightening, leading to a strengthening of the TWD. After 2018, the Fed began a rate hike cycle, and until the pandemic in 2020, its balance sheet expanded rapidly from USD 4.5 trillion to USD 9 trillion, with interest rates falling to zero, increasing dollar depreciation pressure. The TWD once appreciated to around 27 per USD.

Post-2022, due to runaway US inflation, the Fed adopted aggressive rate hikes, causing the dollar to surge and the exchange rate to stay high. It wasn’t until September 2024, when the Fed started cutting rates, that the exchange rate retreated toward 32 yuan.

Market Psychology of the “30 Yuan Barrier”

Over the past decade, market participants have formed a consensus: below 30 yuan, the dollar is favored; above 32 yuan, dollar selling intensifies. This “market consensus” has become a key reference point for long-term FX trading.

Overall, predicting USD exchange rate trends requires closely monitoring Fed policy, Taiwan’s economic fundamentals, and geopolitical developments to make more accurate judgments.