How will the HKD-TWD exchange rate move in 2024? Master these 3 factors to predict the trend.

Hong Kong dollar and New Taiwan dollar are important currencies in the Asian region. The exchange relationship between the two is crucial for business transactions and investment decisions. According to statistics from the Taiwan Tourism Bureau, in 2023, the number of Hong Kong travelers entering Taiwan reached 770,000, setting a record high, which fully reflects the active trading of HKD and TWD.

Current HKD/TWD Exchange Rate: Rebounded to 4.05, Will It Rise or Fall Next?

As of February 2024, the HKD/TWD exchange rate (HKD/TWD) rebounded from 3.905 to 4.05. The driving forces behind this rebound mainly come from two aspects: first, US CPI and PPI data exceeded expectations, dispelling market optimism about a Fed rate cut in March, leading to a stronger US dollar; second, after Taiwan’s elections, the Legislative Yuan did not form a majority advantage, raising concerns among investors about cross-strait relations and policy stability, which is a clear negative for the TWD.

Three Major Factors Influencing HKD/TWD Trends

Factor 1: US Interest Rate Policy

The HKD is pegged to the USD under a linked exchange rate system, with free capital flows. This means HKD performance often closely follows US monetary policy. Whenever the Federal Reserve signals rate hikes or tightening policies, the USD strengthens, and the HKD/TWD exchange rate rises; conversely, if market expectations shift toward rate cuts or easing policies, the USD weakens, and the HKD/TWD declines.

Historical data shows that during two rate cut cycles in 2008 and 2019, the HKD/TWD depreciated by 9.88% and 13.17%, respectively. With the current high of 4.15, a 10% decline would correspond to approximately 3.735.

Factor 2: Taiwan’s Economic Momentum

Taiwan’s economic condition directly affects capital flows and the strength of the TWD. In the second half of 2021, Taiwan’s annual GDP growth reached 6.1%, with strong capital formation and continuous net inflows of foreign investment, leading to a strengthening of the TWD, and the HKD/TWD rate fell to around 3.5.

However, in 2022, Taiwan’s economy significantly slowed down, with exports of goods and services decelerating, even turning negative in early 2023. The TWD depreciated accordingly, and the HKD/TWD rate rose from 3.5 to around 4.15. Political developments across the strait also influence economic expectations—after the DPP came to power in 2015, tense cross-strait relations caused Taiwan’s annual GDP growth to fall from 3.7% to 0.77% the following year.

Factor 3: Global Risk Aversion

When international risks increase and economic outlooks become uncertain, investors tend to buy safe assets linked to the USD, benefiting the HKD; at the same time, capital flows out of Asian markets, putting pressure on the TWD. Changes in the global economic environment often amplify the volatility of HKD and TWD.

How to Understand the Long-term Trend of HKD/TWD?

Reviewing the exchange rate trend since 2007, the HKD/TWD has generally hovered around 4.0, with fluctuations between 3.5 and 4.5, showing a overall oscillating downward trend. It briefly broke above 4.5 in early 2009, and reached a low of 3.5 in January 2022. Mid-term, since the bottom in 2022, there has been a significant rebound, but it remains constrained by the downward channel top, with resistance around 4.15 being more prominent.

What Will Be the Direction of HKD/TWD in 2024-2025?

Downside Scenario: The Fed is highly likely to enter a rate cut cycle in 2024, which will be the main driver for HKD/TWD to decline. Unless black swan events (such as sanctions or geopolitical crises) stimulate inflation, the rate cut trend will be hard to reverse. Based on a 10% decline, HKD/TWD could reach around 3.73-3.74.

Upside Scenario: If the US economy remains resilient or geopolitical risks push up oil prices, thereby stimulating inflation, the Fed may delay or even tighten policies. In this case, HKD/TWD is likely to rise, with the first target around the previous high of 4.15 and the top of the long-term downward channel.

Will the HKD Peg System Collapse?

In recent years, discussions about abandoning the USD peg in favor of a renminbi peg have been ongoing. The logic behind these voices is that, with China’s economic rise, the internationalization of the renminbi, and tense US-China relations, the current linked exchange rate system may become unsustainable.

However, in practice, after decades of financial and political turbulence, the HKD has persisted with the linked exchange rate mechanism. Unless facing extreme crises like US sanctions or war, the stability of this system is trustworthy, and investors need not overly worry about decoupling risks. In fact, the long-term maintenance of the peg has been widely recognized by market participants.

Practical Guide to HKD/TWD Exchange Rate

Long-term investors should prioritize US monetary policy and Taiwan’s economic outlook. These two factors determine the future 12-month trend of HKD/TWD.

Short-term traders can use technical analysis and pattern recognition. If aiming to profit from bottom-fishing at the peg boundary (7.85-7.75), it is theoretically feasible, but after deducting interest, time costs, and transaction fees, the actual profit margin is often minimal. Retail traders’ operations are limited in feasibility.

Common Q&A

Q: How will HKD/TWD exchange rate fluctuate in the future?
A: In 2024-2025, the US is expected to enter a rate cut cycle, and HKD/TWD is likely to decline. However, if the US economy remains resilient or geopolitical risks push inflation higher, there are also upside risks.

Q: How to trade HKD/TWD?
A: Through bank exchange services or via forex trading platforms.

Q: What indicators should be watched for short-term and long-term?
A: Long-term focus on US interest rate policies and Taiwan’s economic health; short-term can be guided by technical analysis and pattern recognition.