New Taiwan Dollar breaks through the psychological barrier of 30! How will the USD to TWD exchange rate move? 2025 Investment Outlook Analysis

The New Taiwan Dollar has recently shown strong performance, breaking through the 30 yuan mark within just a few trading days, creating rare and intense volatility not seen in decades. Some say this is a fleeting hype, while others believe it signals a long-term strengthening of the TWD. How much USD is a good buy? How should investors seize the opportunities brought by this exchange rate fluctuation? This article will analyze the driving factors behind the TWD appreciation, forecast future trends, and provide practical forex investment strategies.

Market Shock: TWD Surges 5% in a Single Day, 40-Year Record

Market sentiment has shifted dramatically. A month ago, concerns were still about the TWD breaking below 34 or even 35 yuan. Unexpectedly, in just 30 days, the situation has completely reversed.

Under the influence of US tariff policies, the TWD has experienced an astonishing rally. On May 2nd, the TWD against the USD soared 5% in one day, setting a 40-year single-day gain record, closing at 31.064 yuan, and reaching a 15-month high. After the weekend market closure, on May 5th, the TWD rose another 4.92%, and intraday, it broke through the psychological barrier of 30 yuan, peaking at 29.59 yuan, triggering the third-largest trading volume in forex market history.

In just two trading days, the TWD has appreciated nearly 10%, not only setting multiple historical records but also shocking global investors. To put this in perspective, from the beginning of this year to early April, the TWD was still in a depreciating trend.

Other Asian currencies have also appreciated, including the RMB, HKD, JPY, and SGD. The SGD rose 1.41%, JPY increased 1.5%, and the Korean won surged 3.8%. However, the magnitude of the TWD’s appreciation is unique within the entire Asian currency zone.

Three Major Factors Triggering the TWD Appreciation Storm

Policy Direction: Trump Tariff Negotiation Sparks the Fuse

The core driver behind the TWD’s surge is changes in US policies. When Trump announced a 90-day delay on reciprocal tariffs, two major market expectations immediately emerged:

First, global traders would accelerate procurement, and Taiwan, as a major supplier of electronics and chips, is expected to benefit from short-term export boosts, providing strong support for the TWD. Second, the International Monetary Fund (IMF) timely raised Taiwan’s economic growth forecast, coupled with stellar performance of the Taiwan stock market, attracting massive foreign capital inflows, which became the first wave of driving forces for the TWD’s rise.

Central Bank Dilemma: Rising Pressure on the Currency Cannot Be Easily Resolved

As a typical export-oriented economy, Taiwan’s net foreign investment accounts for 165% of GDP, making its economy highly sensitive to exchange rate fluctuations. On May 2nd, when the TWD surged, the Central Bank issued an emergency statement but did not directly address the most pressing concern: whether US-Taiwan tariff negotiations involve currency provisions.

In fact, 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 may face an awkward situation where it cannot strongly intervene in the forex market. This concern is not unfounded — Taiwan’s trade surplus in Q1 reached USD 23.57 billion, up 23% year-on-year, with the US surplus soaring 134% to USD 22.09 billion. Without central bank intervention, the TWD faces enormous upward pressure.

Financial Institutions’ Operations: Panic Hedging Amplifies Volatility

UBS’s latest research indicates that the abnormal surge on May 2nd exceeds what traditional economic indicators can explain. Taiwanese life insurers, worried that the central bank can no longer effectively suppress the TWD’s appreciation as in the past, have engaged in large-scale forex hedging operations. Taiwanese life insurers hold up to USD 1.7 trillion in overseas assets (mainly US Treasuries), but have long lacked sufficient hedging measures. This structural risk is now concentrated and exploding.

UBS estimates that restoring foreign exchange hedging/deposits to trend levels alone could trigger about USD 100 billion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP, a risk not to be underestimated.

How Much USD Can Be Bought? Future Exchange Rate Trends Forecast

The most pressing question for investors is: Will the TWD continue to appreciate?

Assessment of Appreciation Potential: 28 Yuan Might Be a Difficult Barrier

The market generally expects the Trump administration to pressure the TWD to continue appreciating, but most industry insiders believe that the possibility of the TWD reaching 28 yuan per USD is very slim. This indicates limited room for further appreciation.

Valuation Indicators Analysis

An important indicator for assessing exchange rate fairness is the BIS (Bank for International Settlements) compiled real effective exchange rate index (REER). This index uses 100 as a baseline; above 100 suggests potential overvaluation, below 100 indicates undervaluation.

As of the end of March:

• US Dollar Index about 113 → Significantly overvalued
• TWD index about 96 → Fairly undervalued
• JPY index only 73, KRW index 89 → Major Asian export currencies are generally undervalued

Comparative Analysis Over the Same Period

Extending the observation period from the recent abnormal volatility to the entire year, the performance of the TWD is actually synchronized with regional currencies:

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

Although the TWD has appreciated rapidly recently, from a long-term perspective, its trend aligns with the overall Asian currency region.

UBS’s Latest Outlook

UBS points out that although the TWD has surged recently, the appreciation trend is expected to continue from multiple dimensions:

Valuation models show the TWD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; forex derivatives markets show the “strongest appreciation expectation in five years”; historical experience suggests that similar large single-day increases often do not immediately retrace. UBS advises investors not to prematurely reverse positions, but expects that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify.

Strategies to Capture Exchange Rate Fluctuations

Advanced Traders’ Approach

If you are an experienced forex trader with high risk tolerance, you can adopt the following strategies:

First, participate directly in short-term trading of USD/TWD or related currency pairs on forex platforms to seize volatility opportunities; second, if you hold USD assets, use derivatives such as forward contracts to hedge and lock in gains from appreciation.

Advice for Novice Investors

For beginners aiming to follow the trend with short-term trades, remember these principles:

Start with small amounts to test the waters, avoid impulsive increases, as emotional overtrading can lead to total loss. Many forex platforms offer demo accounts; it’s recommended to practice trading strategies in virtual environments first to verify feasibility.

Set clear stop-loss points to protect yourself, and keep a close eye on Taiwan’s central bank actions and the latest US-Taiwan trade developments, as these will directly influence the exchange rate.

Long-term Investment Allocation

For long-term strategies, Taiwan’s economic fundamentals are solid, with booming semiconductor exports. The TWD may fluctuate between 30 and 30.5 yuan, remaining relatively strong over the long term. But remember: forex positions should not exceed 5%-10% of total assets; the rest should be diversified into other global assets to control overall risk.

It is advisable to operate USD/TWD with low leverage, combined with Taiwan stocks or bonds, so that even with significant exchange rate volatility, the overall portfolio risk remains manageable.

A Decade in Review: The Long-term Logic of TWD Exchange Rate

Looking back over the past ten years (October 2014 to October 2024), the USD/TWD exchange rate has fluctuated between 27 and 34 yuan, with a volatility of 23%, relatively small compared to global currencies.

In comparison, the JPY exchange rate has experienced a 50% fluctuation (between 99 and 161), twice that of the TWD, indicating relative stability.

The real determinants of TWD’s rise and fall are the Federal Reserve’s policies, not Taiwan’s central bank. The historical trajectory is as follows:

From 2015 to mid-2018, amid China’s stock market crash and European debt crisis, the US slowed its quantitative tightening and continued easing, leading to a strengthening of the TWD. After 2018, the US attempted to raise interest rates and shrink its balance sheet, but with the COVID-19 pandemic in 2020, the Fed doubled its balance sheet in a short period (from USD 4.5 trillion to USD 9 trillion) and lowered interest rates to zero. Under this influence, the USD depreciated, and the TWD surged to 27 yuan.

Post-2022, US inflation spiraled out of control, prompting the Fed to aggressively hike interest rates, causing the USD to rally. The TWD moved from 27 to the 32-33 yuan range. In September 2024, as the Fed ended its high-interest cycle and began cutting rates, the exchange rate retreated back to around 32 yuan.

Market Consensus Reference Point

Past ten-year experience shows that the market has a “ruler”: most believe that when USD is below 30 yuan, it’s a good buy; above 32 yuan, it’s time to sell. For long-term forex investment, these levels can serve as reference zones.

Summary

The appreciation of the TWD fundamentally reflects Taiwan’s rising position in the global economy and its increasing trade competitiveness. How much USD can be bought depends on your investment horizon and risk appetite. Short-term traders should watch the 29-30 yuan support and 31-32 yuan resistance zones; long-term investors should focus on the 30 yuan psychological barrier and adjust strategies based on central bank interventions. Regardless of the approach, key points are risk control and cautious operation—avoid letting single-position volatility impact overall asset allocation.