New Taiwan Dollar breaks through the 30 mark! A complete analysis of the future trend of the US dollar and investment strategies

The New Taiwan dollar has recently experienced a strong appreciation trend, rising nearly 10% over just two trading days, successfully breaking through the important psychological threshold of 30 yuan, and setting the largest single-day gain in 40 years. What signals are hidden behind this abnormal volatility? How will the future trend of the US dollar evolve? Let’s analyze this foreign exchange storm from multiple perspectives.

From Depreciation Panic to Single-Day Surge—The Reversal of the Taiwan Dollar Appreciation

Do you remember a month ago? The market was still worried that the New Taiwan dollar might break through 34 or even 35 yuan. Who would have expected that in just 30 days, the situation would turn 180 degrees.

In early May, the rally of the Taiwan dollar against the US dollar was astonishing. A single-day increase of 5%, with the exchange rate reaching 31.064 yuan, rewriting a 15-month high. The next trading day was even more unstoppable, rising another 4.92%, with intraday touches at 29.59 yuan. Such movement is unique among Asian currencies—in comparison, the Japanese yen rose 1.5%, the Singapore dollar 1.41%, and the Korean won 3.8%, all much calmer.

In the short term, this triggered the third-largest trading volume in the history of the foreign exchange market, reflecting intense market sentiment swings. From the beginning of the year to early April, before US President Trump announced the reciprocal tariff policy, the Taiwan dollar was still depreciating by 1%. The rapid turnaround is hard to believe.

Three Major Drivers Behind the Future US Dollar Trend

Trump Tariff Policy as the Catalyst

The Trump administration announced a 90-day delay in implementing reciprocal tariffs, leading to two major market expectations. On one hand, a wave of centralized procurement is expected globally. Taiwan, as an export-oriented economy, may benefit in the short term, providing strong support for the New Taiwan dollar. On the other hand, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with a stellar performance of the Taiwan stock market, attracting massive foreign capital inflows.

Notably, Taiwan’s first-quarter trade surplus reached US$23.57 billion, up 23% year-on-year, with the US trade surplus soaring 134% to US$22.09 billion. These figures imply significant upward pressure on the currency.

Central Bank Policy Faces Structural Dilemmas

Although the Central Bank issued an emergency statement on May 2 clarifying that it did not intervene in the forex market, it must confront a difficult issue: the US government’s “Fair and Reciprocal Trade Policy” explicitly emphasizes “currency intervention” as a key review point. This means the central bank will find it hard to intervene forcefully as in the past, with structural constraints emerging.

In the context of US-Taiwan negotiations, the central bank is caught in a dilemma. Excessive intervention might be accused by the US of currency manipulation, but if left unchecked, the Taiwan dollar faces enormous appreciation pressure. This predicament directly amplifies market expectations of further appreciation.

Concentrated Hedging Activities in the Financial Sector

According to the latest UBS research, a single-day appreciation of 5% exceeds the explanatory scope of traditional economic indicators. Large-scale forex hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of New Taiwan dollar financing arbitrage trades, jointly caused this abnormal movement.

Particularly noteworthy is that Taiwan’s life insurance industry holds overseas assets worth up to US$1.7 trillion but has long lacked sufficient currency hedging measures. The reason is that in the past, the central bank could effectively suppress significant appreciation of the Taiwan dollar, but this implicit assumption has now been shaken. Restoring foreign exchange hedging to trend levels alone could trigger about US$100 billion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP.

Future US Dollar Trend and Appreciation Space Assessment

The 28 Yuan Level Is Difficult to Break

The market generally expects the Trump administration to pressure the Taiwan dollar to continue appreciating, but the potential space is limited. Most industry insiders believe that the likelihood of the Taiwan dollar reaching 28 yuan per US dollar is very low; the current rally is approaching a reasonable valuation level.

Valuation Models as a Benchmark

The BIS( compiled real effective exchange rate index) REER( is a key indicator for assessing exchange rate rationality. With 100 as the equilibrium value, data shows:

The US dollar index is about 113, indicating a significant overvaluation; the Taiwan dollar index remains around 96, in a reasonably undervalued state. However, UBS’s latest valuation model shows that the Taiwan dollar has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher, meaning the appreciation potential is gradually diminishing.

) Regional Comparison Perspective

Looking at the period from the beginning of the year to now, the cumulative appreciation of the Taiwan dollar against the US dollar is roughly in the same range as the Japanese yen and Korean won:

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

Although the Taiwan dollar has recently appreciated rapidly, from a longer-term perspective, its trend remains synchronized with other major Asian currencies.

Market Expectations Point to Continued Appreciation

The foreign exchange derivatives market shows the “strongest appreciation expectation in five years,” and historical experience suggests that after such a large single-day increase, a quick reversal is unlikely. UBS expects that when the trade-weighted index of the Taiwan dollar rises another 3% (close to the central bank’s tolerance limit), official intervention may intensify to smooth out volatility.

Investment Strategies in the Context of the Future US Dollar Trend

Short-term Trading Strategies

For experienced investors, direct trading of USD/TWD or related currency pairs on forex platforms can capture short-term fluctuations over a few days or even within the same day. If you already hold US dollar assets, you can use derivatives like forward contracts to hedge, locking in the appreciation gains first.

Principles for Novice Investors

For beginners aiming to seize recent volatility opportunities, remember a few core principles: start with small amounts to test the waters, avoid impulsive leverage increases, as a single big bet could end your position quickly. Use low leverage and set stop-loss points to protect yourself. Many forex platforms offer demo accounts to test strategies first.

Medium- to Long-term Portfolio Strategies

If you focus on medium-term holdings, Taiwan’s economy remains solid, with strong semiconductor exports. The Taiwan dollar may oscillate between 30 and 30.5 yuan, maintaining a relatively strong position long-term. It’s advisable to keep forex exposure at 5%-10% of total assets, while diversifying remaining funds into other global assets to effectively manage risk.

Always keep a close eye on the actions of the Taiwan Central Bank and US-Taiwan trade developments, as these will directly influence exchange rate movements. Don’t put all your eggs in one basket—combine forex with investments in Taiwan stocks or bonds to better control overall portfolio risk.

A Decade in Review: Historical Perspective on the Future of the US Dollar

Over the past decade (October 2014 to October 2024), the Taiwan dollar’s exchange rate against the US dollar has fluctuated between 27 and 34, with a volatility of about 23%, relatively small compared to global currencies. In contrast, the Japanese yen’s volatility reached 50% (from 99 to 161), twice that of the Taiwan dollar.

The main determinant of the Taiwan dollar’s ups and downs has been the Federal Reserve rather than Taiwan’s central bank. During 2015–2018, amid Chinese stock crashes and European debt crises, the Fed slowed its QT pace and continued easing, causing the Taiwan dollar to strengthen. After 2018, as the US raised interest rates and prepared to shrink its balance sheet, everything changed with the pandemic in 2020.

From 2020 to 2022, the Fed’s balance sheet expanded from US$4.5 trillion to US$9 trillion, with rates dropping to zero, making the dollar less valuable, and the Taiwan dollar surged to 27 per US dollar.

However, after 2022, US inflation spiraled out of control, prompting the Fed to raise interest rates rapidly, causing the dollar to soar. After the Fed announced a reduction of its third round of QE in 2013, capital flowed back to the US from emerging markets, pushing the USD/NTD exchange rate from its 2013 low up to 33. It wasn’t until September 2024, when the Fed ended its high-interest cycle and started cutting rates, that the exchange rate returned to around 32.

Most investors have a “yardstick”: USD below 1:30 is considered a good buy, above 32 should be considered for selling. For long-term forex investment, this can serve as a reference point.

The interest rate movements of the Taiwan dollar against the US dollar are mainly determined by the Fed’s policies, not Taiwan’s central bank. Ultimately, the future trend of the US dollar depends on the direction of the Fed’s monetary policy.