The USD to New Taiwan Dollar exchange rate breaks through the 30-dollar psychological barrier! Analyzing the rapid currency fluctuations to inform future investment strategies

Just Two Days, New Taiwan Dollar Reverses and Rises 8%, Market Sentiment Fluctuates Dramatically

Against the backdrop of a dramatic shift in the global trade landscape, the USD/TWD exchange rate has recently experienced a thrilling rally. In just two trading days in early May, the TWD appreciated nearly 10% against the US dollar, with the largest single-day gain hitting a 40-year record. From the psychological threshold of 34 yuan at the start of the month to breaking through the 30 yuan mark today, the TWD has shifted from market pessimism to a strong rally. The speed and magnitude of this reversal are rare among Asian currencies.

In comparison, during the same period, the Japanese yen appreciated by 1.5%, the Singapore dollar by 1.41%, and the Korean won by 3.8%. The TWD’s performance is notably more aggressive. This abnormal volatility not only triggered the third-largest trading volume in foreign exchange history but also raised doubts about its sustainability. When the USD/TWD fell to 29.59 yuan, senior officials urgently issued statements to soothe market sentiment.

Three Layers of Factors Converge to Uncover the Truth Behind the Currency Surge

First Layer: US Tariff Policy Reshapes Market Expectations

The new US administration announced a 90-day delay in implementing reciprocal tariffs, instantly changing market sentiment. Investors began to anticipate a global purchasing spree, with Taiwan, as a major export country, expected to benefit in the short term. Simultaneously, the IMF raised Taiwan’s economic growth forecast, and Taiwan’s stock market performed well, signaling a large influx of foreign capital. These factors created upward pressure on the TWD.

Second Layer: Limited Central Bank Policy Space

In the context of the US “Fair and Reciprocal Trade” plan explicitly scrutinizing currency interventions, Taiwan’s central bank faces unprecedented difficulties. On one hand, it must prevent sharp exchange rate fluctuations from harming the economy; on the other hand, it fears that intervention could be perceived as currency manipulation. Taiwan’s trade surplus in the first quarter reached $23.57 billion, a 23% increase year-over-year, with the US trade surplus soaring by 134% to $22.09 billion. These large trade surpluses further intensify the upward pressure on the TWD.

Third Layer: Financial Institutions’ Concentrated Hedging Operations

UBS research found that Taiwan’s insurance industry holds $1.7 trillion in overseas assets (mainly US bonds), with long-term insufficient hedging. Historically, the central bank could effectively curb TWD appreciation, but now financial institutions worry about policy constraints and have begun to concentrate on currency hedging. Such “proactive” hedging operations have, paradoxically, exacerbated exchange rate volatility. Restoring hedging scales to normal levels could trigger approximately $100 billion in USD selling pressure (about 14% of Taiwan’s GDP).

What’s Next for USD/TWD?

Valuation Models Indicate Room for Appreciation

Using the BIS Real Effective Exchange Rate Index (REER) as a reference, the USD index at around 113 is significantly overvalued, while the TWD index remains around 96, indicating a reasonable undervaluation. Compared to the yen at 73 and the Korean won at 89, the TWD still has room for further appreciation, but the chance of reaching 28 yuan is minimal.

( Comparing Long-Term Performance

Looking at the performance from the beginning of the year to now, the TWD has appreciated by 8.74%, the yen by 8.47%, and the won by 7.17%, with similar magnitudes. This suggests that the recent strength of the TWD is not an isolated phenomenon but part of the overall trend of Asian currencies, with regional exchange rates adjusting in sync.

) Derivatives Market Reveals Clues

The foreign exchange derivatives market shows the “strongest appreciation expectation in five years.” UBS believes the TWD will not immediately reverse in the short term. However, if the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), the authorities may increase intervention efforts.

( Historical Cycles Offer Reference

Looking back over the past decade (October 2014 to October 2024), USD/TWD fluctuated between 27 and 34, with a volatility of 23%, relatively small compared to global currencies. After the COVID-19 pandemic, the Fed’s balance sheet expanded from $4.5 trillion to $9 trillion, causing the TWD to spike to 27. Post-2022, as the Fed raised interest rates, the dollar gradually strengthened, returning to around 32. Currently, with the Fed initiating a rate-cut cycle, this provides long-term bullishness for the TWD.

Strategies for Different Investors

For advanced forex traders: Short-term swing trading on USD/TWD or related currency pairs to capture daily fluctuations; or use derivatives like forward contracts to lock in appreciation gains.

For novice investors: Start with small amounts to test the waters, avoid impulsive increases. Many platforms offer demo accounts for practicing strategies. Remember, setting stop-loss points is fundamental; risk control always comes first.

For long-term asset allocators: The TWD may oscillate within the 30 to 30.5 range long-term. Supported by Taiwan’s solid economic fundamentals and robust semiconductor exports, the TWD remains relatively strong. However, forex positions should be limited to 5%-10% of total assets, with the rest diversified into global assets to reduce overall risk.

Key Points to Watch and Future Layout

Investors should focus on these indicators: whether the central bank intensifies forex interventions, developments in US-Taiwan trade negotiations, and the pace of Fed rate cuts. Any change could influence the USD/TWD trend.

Most market participants have a “psychological level”: below 30 yuan is seen as a buying opportunity for USD, above 32 yuan as a signal to sell. For long-term forex investments, this can serve as a reference framework.

Regardless of the strategy, remember not to concentrate all funds in a single market. Combine investments in Taiwan stocks, bonds, and other assets to optimize portfolios, enabling you to seize opportunities from TWD appreciation while managing exchange rate risks. Keep a close eye on central bank actions and US-Taiwan trade developments—these are prerequisites for making sound decisions.