The truth behind the USD to TWD falling below the 30 mark: A comprehensive analysis of the 2025 exchange rate trend

The New Taiwan Dollar (NTD) has recently experienced a remarkable appreciation, with the USD/NTD exchange rate soaring nearly 10% within just two trading days, marking the largest single-day gain in 40 years. On May 2nd, the closing rate was 31.064, hitting a 15-month high, and subsequently breaking the psychological barrier of 30, reaching a peak of 29.59. What is the underlying cause of this abnormal volatility? How should the future trend be assessed? This article will analyze the driving factors behind the USD/NTD exchange rate and its future trajectory.

The Three Layers of Logic Behind USD/NTD Exchange Rate Fluctuations

Valuation Perspective on Exchange Rate Levels

According to the real effective exchange rate index(REER) compiled by the Bank for International Settlements(BIS) as of the end of March:

• USD index is approximately 113 → indicating a significant overvaluation
• NTD index remains around 96 → indicating a reasonable undervaluation

Compared to other major Asian export countries, the Yen and Korean Won indices are only 73 and 89 respectively, suggesting that the entire Asian currency system is relatively undervalued against the USD. UBS’s latest report states that the NTD valuation model has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher, providing fundamental support for an appreciation trend.

Policy Environment Shift and Central Bank Dilemmas

The US announced a 90-day delay in implementing a new round of tariffs, leading markets to expect a wave of centralized procurement globally. Taiwan, as a typical export-oriented economy with net foreign investment accounting for 165% of GDP, is highly sensitive to exchange rate fluctuations.

Meanwhile, the Trump administration’s “Fair Reciprocity Plan” explicitly emphasizes “currency intervention” as a key review point. This creates a substantial constraint for the central bank—while in the past, the central bank could effectively suppress sharp NTD appreciation, now there is concern that intervention might be labeled as currency manipulation by the US Treasury. Taiwan’s trade surplus in Q1 reached $23.57 billion, up 23% year-on-year, with a US trade surplus surging 134% to $22.09 billion. Under this context, the NTD faces enormous appreciation pressure.

Concentrated Release of Financial Structural Risks

UBS’s research report pointed out that the single-day 5% surge in the USD/NTD rate on May 2nd exceeded traditional economic indicator explanations. The analysis suggests that large-scale FX hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of NTD financing arbitrage trades, jointly caused this abnormal movement.

Taiwan’s life insurance industry holds overseas assets worth up to $1.7 trillion (mainly US Treasuries), with long-term insufficient FX hedging measures. Simply restoring FX hedging/deposits to trend levels could trigger about $100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP. This potential risk warrants high attention.

USD/NTD Trend Forecast and Reasonable Range Assessment

Realistic Boundaries of Appreciation Potential

Although the NTD has recently surged aggressively, multi-dimensional analysis suggests its appreciation trend may continue. UBS warns that when the NTD retraces, insurance companies and exporters might further increase hedging ratios. However, most industry insiders believe it’s highly unlikely for the NTD to appreciate to 28 per USD.

UBS expects that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth out volatility.

Regional Currency Synchronization

If we extend the observation period from the recent abnormal volatility to since the beginning of the year, we find that the USD/NTD appreciation is roughly in line with other major Asian currencies:

• NTD up 8.74%
• Yen up 8.47%
• Won up 7.17%

This indicates that despite the recent rapid appreciation of the NTD, its longer-term trend remains synchronized with regional currencies.

Central Bank Tolerance and Market Expectations

Foreign exchange derivatives markets show the “strongest appreciation expectation in five years.” Historical experience suggests that such large single-day gains are unlikely to immediately reverse. The market generally believes that USD below 1:30 can be bought, above 1:32 should be sold.

A Decade in Review of USD/NTD Cycles

Over the past decade (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with a volatility of 23%, showing relatively stable movement compared to global currencies. In contrast, the Japanese Yen, historically considered a safe-haven currency, has experienced a volatility of up to 50% (USD/JPY ranging from 99 to 161), indicating that the Taiwan dollar’s fluctuations are comparatively milder.

The NTD’s small interest rate swings mean that its appreciation or depreciation is mainly driven by Federal Reserve policies. During 2015–2018, amid China’s stock market crash and European debt crisis, the NTD strengthened after the Fed slowed its QT pace. Post-2018, as the US began raising interest rates, and during the COVID-19 pandemic in 2020, the Fed expanded its balance sheet to $9 trillion, lowering rates to zero, leading to USD depreciation and the NTD soaring to around 27 per USD.

However, after 2022, due to runaway US inflation, the Fed rapidly raised interest rates, causing the USD to surge again. It wasn’t until September 2024, when the Fed ended this high-rate cycle and started cutting rates, that the USD/NTD rate returned to around 32.

Layered Investment Strategies

Short-term traders should closely monitor central bank moves and US-Taiwan trade negotiations, engaging in forex trading of USD/NTD and related currencies, capturing daily or even intra-day volatility. If holding USD assets, consider derivatives like forward contracts for hedging.

Beginner investors should avoid impulsive increases; start with small amounts to test the waters. Market sentiment can turn quickly, ending positions abruptly. Use low leverage and set stop-loss points to protect yourself. Many platforms offer demo accounts—practice trading to test your strategies.

Long-term investors should recognize Taiwan’s solid economic fundamentals and strong semiconductor exports, with the USD/NTD likely oscillating within 30 to 30.5 for the foreseeable future. Keep FX exposure within 5–10% of total assets, diversifying remaining funds into other global assets to manage risk. Incorporate investments in Taiwanese stocks or bonds to balance potential FX volatility.

Conclusion

The intense fluctuations of USD/NTD reflect a broader adjustment in the global economic landscape. In the short term, the NTD’s appreciation trend is expected to continue, but the central bank’s tolerance has limits. Investors should tailor their strategies according to their risk appetite and time horizon, while closely monitoring US-Taiwan trade negotiations, central bank signals, and US Federal Reserve rate trends, as these will directly influence the future performance of USD/NTD.