New Taiwan Dollar breaks through the 30 mark, what's the next move? What does historical data say about the exchange rate outlook for 2025

Ten-Year Exchange Rate Fluctuation Review: Why the NT Dollar at 30 Sparks Market Attention

The USD to TWD exchange rate has remained within the 27 to 34 range over the past decade (October 2014 to October 2024), with a fluctuation of about 23%, which is relatively moderate compared to other currencies globally. The JPY to USD exchange rate has experienced a volatility of up to 50% (between 99 and 161), twice that of the NT dollar. But why has the figure of 30 become such a focal point in the market?

The reason lies in collective psychological expectations formed by historical experience—most investors generally see a USD to TWD break below 30 as a good opportunity to buy USD assets, while rising above 32 signals an exit point. This “yardstick in the minds of the majority” has become a decision anchor for market participants.

Core Drivers of the NT Dollar’s Historical Exchange Rate Fluctuations: The Federal Reserve Policy Is Key

The NT dollar itself has a small interest rate fluctuation, so the main determinant of its exchange rate movements is not controlled by Taiwan’s central bank but is led by the policy direction of the U.S. Federal Reserve (Fed).

Looking back at several key periods over the past ten years:

2015 to mid-2018: During the European debt crisis and China’s stock market crash, the U.S. slowed its balance sheet reduction and restarted quantitative easing, leading to a continuous strengthening of the NT dollar.

Post-2018: With optimistic U.S. economic prospects, the Fed began a rate hike cycle and attempted to shrink its balance sheet, causing the NT dollar’s appreciation trend to pause.

2020 pandemic outbreak to 2022: The Fed’s balance sheet surged from USD 4.5 trillion to USD 9 trillion, with interest rates dropping to zero. The dollar depreciated sharply, pushing the NT dollar to 27, a ten-year high.

After 2022: U.S. inflation spiraled out of control, prompting the Fed to aggressively raise interest rates, causing the dollar to rebound significantly, with the exchange rate fluctuating within a narrower range.

Since September 2024: The Fed ended its current high-interest cycle and began cutting rates, and the USD to TWD exchange rate has fallen back to around 32.

The Three Major Drivers Behind Recent Sharp Appreciation

Trade Expectations and Policy Shifts

Uncertainty around tariff policies has become the trigger for the recent rapid appreciation of the NT dollar. When the U.S. announced delays in tariff implementation, the market immediately responded with two expectations: global companies would initiate a procurement surge benefiting Taiwan’s export-oriented economy; simultaneously, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with strong Taiwan stock market performance. These signals attracted large foreign capital inflows, forming the first wave of upward momentum for the New Taiwan dollar.

The Dilemma Facing the Central Bank

When the central bank faces a situation where the U.S. explicitly lists “exchange rate intervention” as a focus of review under the “Fair and Reciprocal Trade” plan, it finds itself in a dilemma. Strong intervention to weaken the currency could be labeled as currency manipulation by the U.S. Treasury, but allowing the NT dollar to appreciate puts pressure on export industries. Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, up 23% year-on-year, with a USD 13.4% surge in the U.S. trade surplus to USD 22.09 billion. Under this context, the central bank faces significant policy pressure.

Financial Institutions’ Hedging Operations

UBS’s latest research indicates that Taiwan’s life insurance industry holds as much as USD 1.7 trillion in overseas assets (mainly U.S. Treasuries), but has long lacked sufficient foreign exchange hedging positions. The traditional methods used by Taiwan’s central bank to suppress NT dollar appreciation are no longer reliable, prompting insurers and exporters to undertake large-scale hedging and unwinding operations, which have amplified recent exchange rate volatility. UBS estimates that if foreign exchange hedging positions revert to trend levels, it could trigger about USD 100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP. This potential risk cannot be ignored.

Framework for Assessing Fair Exchange Rate Levels

Insights from the BIS Real Effective Exchange Rate Index

A key tool for evaluating whether the NT dollar’s appreciation is excessive is the real effective exchange rate (REER) index compiled by the Bank for International Settlements. The index uses 100 as a balanced value; above 100 indicates overvaluation, below 100 suggests undervaluation.

As of the end of March:

• The USD index was about 113, indicating a significant overvaluation
• The NT dollar index remained around 96, in a reasonably undervalued zone
• Major Asian export currencies were even more undervalued, with the Yen index at only 73 and the Korean Won at 89

This suggests that even after appreciation, the NT dollar still has room to strengthen further relative to regional currencies.

UBS’s Outlook Assessment

UBS’s multi-dimensional analysis indicates that the NT dollar’s appreciation trend will continue:

Valuation models show the NT dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher; the FX derivatives market reflects the “strongest appreciation expectation in five years”; historical experience suggests that large single-day gains are rarely immediately reversed.

However, UBS expects 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 smooth out volatility.

The Reality of the 28-NT-Dollar Barrier

Although market expectations for the NT dollar’s appreciation are optimistic, industry insiders generally believe that the possibility of the NT dollar reaching 28 to 1 USD is very low. Instead, a longer-term oscillation within the 30 to 30.5 range is more likely, which aligns with Taiwan’s economic fundamentals and trade structure.

How Investors Can Seize This Opportunity

Strategies for Experienced Traders

If you have foreign exchange trading experience and high risk tolerance, consider short-term trading of USD/TWD or related currency pairs on FX platforms to capture daily or even intra-day fluctuations. If you already hold USD assets, you can use derivatives like forward contracts to lock in gains from NT dollar appreciation.

A Steady Approach for Beginners

For newcomers wanting to participate in short-term volatility, remember these basic principles: start with small amounts to test the waters, avoid impulsive increases; a single bad trade can lead to total loss. Many platforms offer demo accounts—use them to test strategies before risking real funds.

Using low leverage is essential to protect yourself; always set stop-loss points to limit maximum losses. It’s recommended to keep FX positions within 5% to 10% of total assets, and diversify remaining funds into other global assets, to effectively manage overall investment risk.

Long-Term Investment Considerations

Taiwan’s economic fundamentals are solid, with robust semiconductor exports supporting the NT dollar’s potential to stay relatively strong within the 30 to 30.5 range. However, long-term FX investors should keep a close eye on the central bank’s moves and U.S.-Taiwan trade negotiations, as these directly influence exchange rate trends.

Regularly review your investment positions, and consider pairing FX strategies with Taiwan stocks or bonds to diversify currency risk. For stable FX gains, low leverage combined with proper entry and exit points is a relatively ideal approach.

Conclusion: Grasp the 30-NT-Dollar Psychological Level, but Don’t Overlook Deeper Economic Structures

The NT dollar’s exchange rate has experienced multiple fluctuations over the past decade, but the 30 mark has become a market focal point primarily because it reflects the intersection of economic fundamentals and market expectations. In the short term, the NT dollar may continue to appreciate within the central bank’s tolerance range, but the probability of extreme scenarios below 28 is limited.

Investors should develop reasonable investment plans based on a thorough understanding of the drivers of NT dollar fluctuations, the policy space of the central bank, and their own risk tolerance, rather than blindly chasing short-term opportunities.