Will the US dollar continue to rise? Exchange rate analysis and investment strategies after the New Taiwan dollar breaks 30 yuan

The NT Dollar’s Surprising Rally: Where Is the USD/NTD Going?

The New Taiwan Dollar has recently experienced a historic surge, appreciating nearly 10% over just two trading days. According to market data, on May 2nd, the NT dollar soared 5% in a single day, marking the largest gain in 40 years. The next day, it continued to strengthen, breaking through the key psychological level of 30 yuan intraday, with a low of 29.59 yuan, hitting a 15-month high.

Such intense volatility is extremely rare in the global foreign exchange markets and has triggered the third-largest trading volume in history. Meanwhile, other Asian currencies also appreciated with US policy adjustments, but their gains were far less aggressive—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%. In comparison, the NT dollar’s rally stands out as unique.

Compared to its performance earlier this year, the NT dollar was still slightly depreciating, but within weeks, a dramatic reversal occurred. Is this reversal just market overreaction, or the start of a new trend? Will the US dollar continue to weaken? What does this mean for investors?

The Three Main Drivers Behind the USD/NTD Surge

Tariff Policies as the Catalyst

The US government proposed reciprocal tariff policies, sparking expectations of a reshaping of global trade patterns. When news broke that tariffs would be delayed by 90 days, the market quickly formed two expectations:

First, global companies will initiate a wave of procurement to boost imports. Taiwan, as a major supplier of electronics and semiconductors, is expected to benefit from increased export orders in the short term, supporting the NT dollar’s appreciation. Second, the International Monetary Fund unexpectedly raised Taiwan’s economic growth forecast, coupled with strong performance in the Taiwan stock market, attracting significant foreign investment into Taiwan.

The Dilemma of Central Bank Policies

Taiwan’s central bank faces a delicate situation amid this currency surge. On May 2nd, the central bank issued a statement, but its stance on the core issue was vague—attributing the appreciation to “market expectations that the US may request trading partners to appreciate their currencies,” without directly addressing whether the US-Taiwan negotiations involve exchange rate clauses.

The US government’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a key review point, putting the central bank in a bind: aggressive intervention could be accused of currency manipulation, while inaction might fail to curb the appreciation pressure. This dilemma has a solid background—Taiwan’s trade surplus in Q1 reached $23.57 billion, up 23% year-on-year, with the US trade surplus soaring 134% to $22.09 billion.

Concentrated Operations by Financial Institutions

UBS research indicates that the 5% single-day increase exceeds what traditional economic indicators can explain, with large-scale internal financial operations being the key driver. Taiwanese insurers and exporters have engaged in intensive currency hedging, and NT dollar financing arbitrage trades have been closed out in bulk. These structural factors amplify volatility.

Particularly noteworthy is that Taiwanese life insurers hold overseas assets totaling up to @E5@1.7 trillion USD, mainly US Treasuries, with long-term insufficient currency hedging. Historically, the central bank could effectively suppress sharp NT dollar appreciation, leading firms to underestimate hedging needs. Now, facing policy changes, they are forced to concentrate hedging operations, further intensifying the appreciation pressure. UBS warns that if foreign exchange hedging scales return to trend levels, it could trigger about @E5@1000 billion USD in dollar selling pressure, equivalent to 14% of Taiwan’s GDP.

USD Outlook and Exchange Rate Rationality Assessment

Limited Upside for Appreciation

Market consensus expects US pressure to continue pushing the NT dollar higher, but the extent of appreciation remains uncertain. Most industry insiders believe that the possibility of the NT dollar reaching 28 per USD is very low, and the upside potential is quite limited.

International Settlement Bank (BIS) Indicators

A key reference for assessing exchange rate rationality is the BIS’s real effective exchange rate index(REER). This index uses 100 as the equilibrium value; above 100 indicates overvaluation, below 100 indicates undervaluation.

As of the end of March:

• US Dollar Index around 113 → clearly overvalued
• NT dollar index around 96 → relatively reasonable but slightly undervalued
• Yen index 73 → more pronounced undervaluation
• Korean won index 89 → also undervalued

From these indices, the NT dollar does have room to appreciate, but the possibility of the USD/NTD reversing upward warrants caution.

( Regional Currency Trends

Looking at the period from the start of the year to now, the NT dollar’s appreciation matches that of major regional currencies:

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

While the NT dollar has recently risen rapidly, in a longer-term perspective, its performance aligns with the overall Asian currency trend, not an outlier.

) UBS Mid-term Outlook

According to UBS’s latest analysis, the NT dollar’s appreciation trend is expected to continue. Valuation models show the NT dollar has shifted from moderate undervaluation to a level 2.7 standard deviations above fair value; FX derivatives markets reflect the “strongest appreciation expectation in five years”; historical experience suggests that large single-day gains are rarely followed by immediate sharp reversals.

UBS advises investors not to prematurely reverse positions but predicts that when the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to stabilize volatility.

Will the US dollar continue to rise? A Decade in Review

Over the past decade (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with a volatility of about 23%, relatively small compared to major global currencies. The USD/JPY rate has ranged from 99 to 161, with a volatility of 50%, twice that of the NT dollar.

The movement of the NT dollar is not solely controlled by Taiwan’s central bank but mainly depends on the US Federal Reserve###FED###'s interest rate policies. Historical review:

• 2015–mid 2018: Affected by China’s stock market crash and European debt crisis, the US slowed its quantitative tightening and resumed quantitative easing, leading to a strengthening of the NT dollar.
• 2018–early 2020: US rate hikes, US dollar appreciated, and the NT dollar faced depreciation pressure.
• 2020–2022: Pandemic outbreak prompted the Fed to cut rates to zero and expand its balance sheet from $4.5 trillion to $9 trillion. The US dollar depreciated significantly, and the NT dollar hit a 15-year low of 27 per USD.
• 2022–present: US inflation spiraled out of control, prompting the Fed to rapidly raise interest rates, strengthening the dollar, with the exchange rate rebounding to 32–34 and fluctuating.

Key insight: The Federal Reserve has implemented three rounds of quantitative easing since the 2008 financial crisis. In December 2013, the Fed began tapering QE3, and US interest rates rose, capital flowed back to the US, pushing the USD/NTD rate from its lows of 33 upward. It wasn’t until September 2024, when the Fed announced the end of rate hikes and began cutting rates, that the dollar started to adjust.

Investment Strategies and Risk Warnings

( Forex Trading Veteran Approaches

For experienced traders, consider two strategies:

First, short-term trading of USD/NTD or related currency pairs to capture daily or intraday fluctuations. Second, if holding USD assets, use derivatives like forward contracts to hedge and lock in appreciation gains in advance.

) Principles for Beginners

New traders should exercise caution amid current high volatility:

First, risk control—use small amounts to test the waters, avoid impulsive over-leverage. A single emotional mistake could lead to total loss.

Set stop-loss orders—always establish stop-loss points for any FX trades to protect principal from excessive losses.

Practice with demo accounts—many FX platforms offer demo accounts; beginners should utilize these tools to test strategies and develop market intuition.

Monitor policies closely—keep an eye on Taiwan’s central bank actions and US-Taiwan trade negotiations, as these directly influence exchange rates.

Long-term Asset Allocation

From a long-term perspective, Taiwan’s solid economic fundamentals and sustained semiconductor exports suggest the NT dollar may oscillate around 30 to 30.5 yuan, maintaining a relatively strong overall performance.

Portfolio diversification—limit FX holdings to 5–10% of total assets, and diversify remaining funds into other global assets to reduce overall risk.

Operational approach—use low leverage when trading USD/NTD to avoid amplifying risks through excessive leverage.

Asset diversification—combine FX trading with investments in Taiwanese stocks or bonds; even amid volatile exchange rates, overall portfolio risk can be managed effectively.

Summary: Will the US dollar keep rising?

From multiple angles, the upside for the USD against the NT dollar appears limited, and the NT dollar is likely to remain relatively strong. The central bank’s tolerance level is around 30 yuan; breaching this could trigger official intervention.

However, investors should be aware that extreme volatility may reoccur, especially when US-Taiwan negotiations or US policy adjustments are announced. The most prudent approach is to set reasonable investment positions within your risk appetite, avoid all-in bets on a single asset, and continuously monitor policy developments and economic data. The forex market is full of opportunities but also hidden risks; professional risk management remains the cornerstone of long-term profitability.