The Taiwanese dollar's rally breaks the psychological barrier of 30! In-depth analysis of the 2025 exchange rate trend

The NT dollar has recently shown a strong appreciation, with an astonishing rally within just a few trading days. Is this wave of appreciation a short-term fluctuation or a long-term trend? This article analyzes data and interprets economic factors to reveal the truth behind the NT dollar’s appreciation and explores future trends and investment opportunities.

NT Dollar Appreciation Timeline: From Depreciation Concerns to Record Single-Day Gains

A month ago, the market was worried that the New Taiwan dollar might depreciate to 34 or even 35 yuan, but in just 30 days, market sentiment completely reversed. The tariff policy became the trigger for this rally—NT dollar against the US dollar surged by 5% in a single day, breaking a 40-year record for the largest single-day gain, closing at 31.064 yuan, a 15-month high.

After the weekend, the situation continued to heat up, with the NT dollar rising another 4.92%, breaking the important psychological barrier of 30 yuan, reaching intraday lows of 29.59 yuan. In just two trading days, the NT dollar appreciated nearly 10%, creating the third-largest trading volume in the forex market history.

In comparison, other Asian currencies performed relatively mildly—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%. The sharp surge of the NT dollar is truly unique among Asian currencies.

Why has the NT dollar been so volatile?

As a typical export-oriented economy, Taiwan has a net foreign investment scale accounting for as high as 165% of GDP, making its economy particularly sensitive to exchange rate fluctuations. This abnormal surge triggered market panic, prompting high-level government officials to quickly stabilize expectations.

Three Major Drivers of NT Dollar Appreciation

Factor 1: Trump’s Tariff Policies Ignite the Fuse

U.S. President Trump announced a 90-day delay in implementing reciprocal tariffs, immediately creating two market expectations:

• A wave of centralized procurement globally, benefiting Taiwan’s exports in the short term and providing strong support for the NT dollar;
• The International Monetary Fund ((IMF)) unexpectedly raised Taiwan’s economic growth forecast, coupled with stellar performance of Taiwan’s stock market, attracting massive foreign investment and becoming the first wave of driving forces for the NT dollar’s appreciation.

Factor 2: Central Bank Faces Policy Dilemma

On May 2, the day the NT dollar surged sharply, the Central Bank stated that the volatility was due to “market expectations that the US may request trading partners to appreciate their currencies,” but did not directly address whether exchange rate clauses are involved in the US-Taiwan negotiations.

The Trump administration’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a key review point. Under the context of US-Taiwan negotiations, the Central Bank faces a dilemma—traditionally, its space for strong intervention in the forex market is limited. This concern is not unfounded, as Taiwan’s first-quarter trade surplus reached $23.57 billion, up 23% year-on-year, with the US trade surplus soaring 134% to $22.09 billion.

Factor 3: Financial Industry’s Hedging Operations Amplify Volatility

UBS’s latest research indicates that the 5% single-day surge of the NT dollar on May 2 exceeded traditional economic indicator explanations. Besides market sentiment, large-scale currency hedging operations by Taiwanese insurers and corporations, as well as concentrated unwinding of NT dollar financing arbitrage trades, jointly caused this abnormal movement.

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

The Financial Times pointed out that the main driver of this appreciation was Taiwan’s life insurance industry’s “panic hedging” of huge US dollar assets. Taiwan’s life insurers hold $1.7 trillion in overseas assets (mainly US Treasuries), but have long lacked sufficient hedging measures—mainly because “in the past, the central bank could effectively suppress the NT dollar’s appreciation,” but now faces a dilemma.

Outlook for USD/TWD Future Trends

Is there still room for the NT dollar to appreciate?

The 28 yuan level is hard to break through

The market generally expects the Trump administration to pressure the NT dollar to continue appreciating, but the exact extent remains uncertain. Industry insiders believe that the possibility of the NT dollar reaching 28 yuan per USD is very low.

Assessment Indicator: Real Effective Exchange Rate (REER)

The Bank for International Settlements (BIS) compiles the REER as an important indicator of exchange rate fairness. A value of 100 indicates equilibrium; above 100 suggests overvaluation, below 100 indicates undervaluation.

As of the end of March:

• US dollar index around 113 → clearly “overvalued”
• NT dollar index around 96 → “fairly undervalued”
• Yen index 73, Korean won index 89 → major Asian export currencies are significantly undervalued

Regional Currencies Rising Simultaneously

Extending the observation period from the past month to the beginning of the year:

• NT dollar up 8.74%
• Japanese yen up 8.47%
• Korean won up 7.17%

All are rising, with the NT dollar’s appreciation roughly in sync with regional currencies.

UBS Report Key Analysis

Although the recent surge of the NT dollar has been fierce, multiple dimensions suggest the appreciation trend will continue:

Valuation models show the NT dollar has shifted from moderate undervaluation to a level 2.7 standard deviations above fair value; forex derivatives markets indicate the “strongest appreciation expectation in five years”; historical experience suggests that after similar large single-day increases, immediate retracement is unlikely.

UBS recommends investors avoid premature contrarian bets, but when the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth volatility.

Investment Opportunities and Strategies for NT Dollar Appreciation

( Short-term trading ideas

If you are experienced in forex trading, you can directly engage in short-term trading of USD/TWD or related currency pairs on forex platforms; if you hold USD assets, you can hedge using forward contracts or other derivatives to lock in the appreciation gains.

) Safe practices for beginners

Want to seize volatility opportunities but afraid of losses? Remember these principles: start with small amounts to test the waters, and avoid impulsively increasing your positions. A single emotional outburst could end the game. It’s recommended to use legitimate forex trading platforms for small-scale short-term trading to practice trading skills.

Long-term investment advice

Taiwan’s economy is solid, with booming semiconductor exports, and the NT dollar may fluctuate between 30 and 30.5 yuan, maintaining a relatively strong position in the long run. But remember to keep forex positions within 5%-10% of total assets, and diversify remaining funds into global assets to effectively manage risk.

For steady forex gains, it’s advisable to use low leverage on USD/TWD and set stop-loss points for self-protection. Many forex platforms offer demo accounts to test trading strategies first.

Closely monitor Taiwan’s central bank policies and the latest US-Taiwan trade developments, as these directly influence exchange rate movements. Also, avoid over-concentrating investments; consider pairing with Taiwan stocks or bonds to ensure overall portfolio risk remains manageable.

Ten-Year Review of USD/TWD Exchange Rate

Over the past decade (October 2014 to October 2024), the NT dollar against the US dollar has fluctuated between 27 and 34 yuan, with a volatility of 23%, relatively small compared to global currencies.

In contrast, the Japanese yen’s fluctuation reached 50% (from 99 to 161), twice that of the NT dollar. The NT dollar’s interest rate changes are minor; its movements mainly depend on Federal Reserve policies.

During 2015–2018, amid China’s stock market crash and the European debt crisis, the Fed slowed its balance sheet reduction and began quantitative easing, strengthening the NT dollar. After 2018, as the US started raising interest rates, and following the COVID-19 pandemic in 2020, the Fed expanded its balance sheet significantly—from $4.5 trillion to $9 trillion—and lowered interest rates to zero, causing the dollar to depreciate and the NT dollar to surge to 27 yuan.

Post-2022, due to runaway US inflation, the Fed rapidly raised interest rates, reversing the dollar’s trend upward. In September 2024, the Fed ended its high-interest cycle and began cutting rates, bringing the exchange rate back to around 32 yuan.

Since the 2008 financial crisis, the Fed launched three rounds of quantitative easing, and started tapering in December 2013. US market interest rates rose, capital flowed back, and the USD/NT dollar exchange rate climbed from its 2013 low to 33 yuan.

Key insight: The fluctuations in the NT dollar against the US dollar are mainly determined by the Fed’s interest rate policies, not Taiwan’s central bank. There is a common market perception of a “30 yuan rule”—most believe that USD below 30 can buy, above 32 should be sold.

When engaging in long-term forex investments, this can serve as a reference benchmark.

Conclusion

The NT dollar’s appreciation trend may continue under multiple factors, but the room for further gains is gradually narrowing. Investors should closely monitor US trade policies, central bank actions, and international economic data, while managing forex risk and avoiding over-concentration in a single currency. Discipline and risk management are key to success, whether in short-term trading or long-term investing.