TWD fluctuates wildly! What’s next after breaking the 30 mark? An in-depth analysis of the 2025 exchange rate trend

Ten-Year Exchange Rate Review: Understanding the Cyclical Patterns of the NT Dollar’s Fluctuations

Before exploring the current phenomena of NT dollar appreciation and depreciation, it is necessary to review the historical context of the past decade. From October 2014 to October 2024, the USD/NTD exchange rate fluctuated between 27 and 34, with an amplitude of about 23%. In comparison, the USD/JPY volatility reached as high as 50% (oscillating between 99 and 161), demonstrating the relative stability of the NT dollar.

This stability is primarily due to the limited interest rate fluctuations in Taiwan itself, with exchange rate movements mainly driven by Federal Reserve policies. Between 2020 and 2022, the Fed’s balance sheet expanded from USD 4.5 trillion to USD 9 trillion, with interest rates dropping to zero, leading to USD depreciation and NT dollar appreciation to a high of 27. However, after 2022, the Fed launched aggressive rate hikes in response to runaway inflation, strengthening the dollar and causing the exchange rate to rebound to around 32. It was only until September 2024, when the Fed ended its rate hike cycle and began cutting rates, that the exchange rate adjusted again.

Why Have the Recent NT Dollar Fluctuations Been So Volatile? Analyzing Three Major Driving Forces

Policy Orientation: The Expected Effects of Trump’s Tariff Negotiations

After the Trump administration announced a 90-day delay in implementing reciprocal tariffs, two major expectations formed in the market: first, global buyers would initiate concentrated procurement to avoid tariffs, benefiting Taiwan as an export-oriented economy in the short term; second, the International Monetary Fund (IMF) raised Taiwan’s economic growth forecast, coupled with strong performance in the Taiwan stock market, attracting large inflows of foreign capital. These factors collectively boosted the NT dollar’s upward momentum.

Structural Risks: The Dilemma of Central Bank Policies

On May 2, the NT dollar appreciated by 5% against the USD in a single day, the largest gain in 40 years, with intraday approaching 29.59. Over just two trading days, the total appreciation neared 10%, triggering the third-largest trading volume in the forex market. However, the central bank faces a dilemma: the Trump administration’s “Fair and Reciprocal Trade Policy” explicitly emphasizes scrutinizing currency interventions, making it difficult for the central bank to intervene forcefully as in the past.

Taiwan’s trade surplus in the first quarter reached USD 23.57 billion (up 23% year-on-year), with the US trade surplus surging 134% to USD 22.09 billion. Under the circumstances where the central bank finds it difficult to intervene, the NT dollar faces enormous upward pressure.

Financial Operations: Concentrated Hedging and Position Closing

UBS research indicates that large-scale currency hedging operations by Taiwan’s insurance companies and export firms, along with concentrated closing of NT dollar financing arbitrage trades, have amplified exchange rate volatility. Taiwan’s life insurance industry holds about USD 1.7 trillion in overseas assets (mainly US Treasuries), which have long lacked sufficient currency hedging. Historically, due to effective suppression of appreciation by the central bank, industry players habitually underestimated risks. Now, as hedging scales return to normal levels, it could trigger about USD 100 billion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP.

Reasonable Assessment of NT Dollar Fluctuations: Is the Exchange Rate Over- Appreciated?

BIS Real Effective Exchange Rate (REER) Index Analysis

This index uses 100 as the baseline. As of the end of March:

• USD Index is about 113 → indicating a significant overvaluation
• NT dollar index is about 96 → in a reasonably undervalued state

In comparison, currencies of major Asian export countries are even more undervalued, with JPY and KRW indices at 73 and 89 respectively.

Regional Comparison from the Beginning of the Year to Now

If the observation period extends from the start of the year to now, the cumulative appreciation of the NT dollar is roughly in line with regional currencies:

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

Although recent fluctuations in the NT dollar have been intense, in the context of regional performance, its appreciation is not particularly remarkable.

Forecasting the Future Trend of NT Dollar Fluctuations

Appreciation Limit Analysis

The market generally expects the US government to pressure the NT dollar to continue appreciating, but the scope for further appreciation is limited. Most industry insiders believe that it is highly unlikely for the NT dollar to reach 28 per USD. According to UBS valuation models, 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.

Long-Term Trend Judgment

Despite recent strong performance, the outlook for continued appreciation of the NT dollar remains, based on multiple factors:

• Valuation models show the NT dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher
• FX derivatives markets indicate the “strongest appreciation expectation in five years”
• Historical experience suggests that after similar large single-day increases, immediate corrections are unlikely

UBS advises investors not to prematurely adopt contrarian strategies but to plan ahead for potential responses.

How to Capture Investment Opportunities from NT Dollar Fluctuations?

Short-Term Strategies for Experienced Traders

For seasoned forex traders, direct operations on USD/NTD or related currency pairs on forex platforms can capture short-term movements over days or even intraday; if holding USD assets, hedging through forward contracts and other derivatives to lock in appreciation gains is recommended.

Conservative Operations for Beginners

Newcomers to forex investing should keep in mind:

• Start with small amounts to test the waters, avoiding impulsive increases
• Use low leverage when trading USD/NTD, and always set stop-loss points
• Use demo accounts to test strategies and verify trading methods
• Closely monitor central bank policies and latest US-Taiwan trade developments

Long-Term Asset Allocation and Risk Management

Long-term investors should note that Taiwan’s economic fundamentals are solid, with booming semiconductor exports, and the NT dollar may oscillate between 30 and 30.5, maintaining relative strength over the long term. Recommended approaches:

• Keep forex positions within 5%-10% of total assets
• Diversify with Taiwan stocks or bonds
• Even with significant exchange rate fluctuations, overall portfolio risk can remain within manageable limits

Key Investment Reference Points

Market consensus: When USD/NTD is below 30, it is appropriate to buy; above 32, consider selling. This “market consensus gauge” can serve as a long-term reference for exchange rate investments.

Although short-term fluctuations of the NT dollar are intense, over a ten-year cycle, its volatility mainly follows the Federal Reserve’s policy rhythm. Understanding this basic logic, combined with central bank tolerance levels and economic fundamentals, enables investors to seize appropriate trading opportunities within the NT dollar’s cyclical fluctuations.