The Taiwanese dollar is appreciating rapidly! Analyzing the psychological barrier of 30 yuan to understand the investment logic of USD to TWD exchange rate

A Twisted Road of TWD Appreciation: From Panic to Surge

Remember the market concerns a month ago? At that time, news was everywhere predicting the New Taiwan Dollar might break below 34, with some even warning of a terrifying scenario hitting 35. Who would have thought that in just 30 days, market sentiment would turn 180 degrees.

How fierce was this reversal? During two trading days around May, the TWD against the USD appreciated nearly 10%, setting a 40-year record for the largest single-day gain. On May 2, the TWD surged 5%, followed by another 4.92% increase on May 5, with the exchange rate briefly breaking the psychological barrier to 29.59, and forex trading volume reaching the third-largest scale in history.

Compared to other Asian currencies, the TWD’s performance this round truly stands out. During the same period, the Singapore dollar rose 1.41%, the Japanese yen 1.5%, and the Korean won 3.8%, but the TWD’s surge was clearly exceptional. How strong is this force? Even top government officials couldn’t sit still, with Taiwan’s President and Central Bank Governor issuing statements to soothe the market, highlighting the extreme volatility.

Why is the TWD Leading the Pack? A Comprehensive Analysis of Three Major Triggers

Trump’s Tariff Policies Ignite the Fuse

U.S. President Trump announced a 90-day delay in implementing reciprocal tariffs, which immediately triggered a chain reaction. The market’s two main expectations:

First, global companies will initiate a wave of centralized procurement, benefiting Taiwan as an export-oriented economy, providing solid support for the TWD. The IMF subsequently raised Taiwan’s economic growth forecast, and Taiwan’s stock market performed well, these positive news pushed foreign capital influx, becoming the first engine driving the TWD’s appreciation.

The Central Bank Faces a Dilemma

On the surface, the Central Bank issued a statement on May 2 attributing currency fluctuations to “market expectations that trade partners’ currencies may appreciate.” But the key question remains: does the Taiwan-U.S. tariff negotiation involve exchange rate clauses? The CB did not respond directly.

Behind this silence are deeper reasons. The Trump administration’s “Fair Reciprocity Plan” explicitly targets “currency intervention” as a focus of review, which has constrained the CB’s actions. Taiwan’s trade surplus in the first quarter reached $23.57 billion (up 23% year-on-year), with the surplus against the U.S. soaring 134% to $22.09 billion. Without the CB’s intervention, the TWD faces enormous upward pressure—this is not mere speculation but a real structural risk.

The Financial Industry’s “Panic Hedging” Amplifies Volatility

UBS research reports that a 5% single-day increase exceeds what traditional economic indicators can explain. Besides market sentiment, large-scale currency hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of TWD financing arbitrage trades, jointly pushed up this volatility.

Most crucially, restoring foreign exchange hedging to trend levels could trigger about $100 billion in USD selling pressure (equivalent to 14% of Taiwan’s GDP). Taiwanese life insurers hold $1.7 trillion in overseas assets but lack long-term hedging measures, which is a hidden bomb in the financial system. On May 3, the Financial Times pointed out that the main driver of the TWD’s surge was the “panic hedging” by the insurance industry. The CB Governor later rebutted, but the market has already recognized this structural issue.

What’s Next for USD/TWD? Key Indicators Tell You

Is 28 a line that cannot be crossed?

Most industry insiders believe that the possibility of the TWD reaching 28 per USD is very low. Although the Trump administration might pressure for further appreciation, the specific extent remains debated.

Using REER Index to Assess Exchange Rate Fairness

The BIS (Bank for International Settlements) compiles the Real Effective Exchange Rate (REER) index, a key tool for evaluating currency valuation, with 100 as the equilibrium point:

As of the latest data at the end of March: the USD index is about 113 (significantly overvalued), and the TWD index is around 96 (reasonably undervalued). In comparison, the Japanese yen at 73 and the Korean won at 89 are even more undervalued. This suggests the TWD still has room to appreciate, but a ceiling exists.

( Long-term Trend Comparison

Looking at the longer period from the start of the year, the appreciation of the TWD against the USD has kept pace with regional currencies:

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

Although the TWD has recently appreciated rapidly, from a longer-term perspective, its trend aligns with overall Asian currency performance.

) UBS’s Latest Forecast: Continued Appreciation!

Multiple analyses point in the same direction—the TWD’s appreciation trend will continue:

Valuation models show the TWD has shifted from moderate undervaluation to about 2.7 standard deviations above fair value; forex derivatives markets indicate the “strongest appreciation expectation in five years”; historical experience suggests that after such large single-day jumps, immediate retracement is unlikely.

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

A Decade in Review: The Historical Logic of TWD Exchange Rate Fluctuations

Over the past decade (2014-2024), the TWD/USD exchange rate has oscillated between 27 and 34, with a volatility of about 23%, relatively small compared to global currencies. The Japanese yen’s fluctuation reaches 50% (99–161), twice that of the TWD! This reflects the relative stability of the TWD.

The actual control over the TWD’s rise and fall is in the hands of the Federal Reserve, not Taiwan’s Central Bank:

2015-2018: During China’s stock market crash and the European debt crisis, the Fed slowed QT and began easing, strengthening the TWD.

Post-2018: The Fed’s rate hike cycle began, causing the TWD to retreat.

2020-2022: During the pandemic, the Fed’s balance sheet surged from $4.5 trillion to $9 trillion, rates dropped to zero, the USD depreciated, and the TWD soared to 27.

After 2022: U.S. inflation spiraled out of control, the Fed rapidly raised interest rates, the USD surged, and the exchange rate returned to around 32.

September 2024: The Fed ended its high-interest cycle and started cutting rates, bringing the exchange rate back to 32.

Seizing Investment Opportunities in TWD Appreciation: Advanced vs. Beginner Guide

( Veteran Investors’ Two Strategies

First: Trade USD/TWD or related currency pairs directly on forex platforms, capturing short-term fluctuations. This requires a good sense of the market and quick execution, even by the minute.

Second: If you already hold USD assets, use derivatives like forward contracts to hedge and lock in the appreciation gains. This is a professional risk management approach.

) Beginner’s Safe Rules

If you’re new to forex and want to catch recent volatility but lack confidence, remember these ironclad rules:

Start small—don’t impulsively add leverage repeatedly. Over-leveraging can blow your mind and end your trading journey. Many platforms offer demo accounts—practice first to test your strategies.

Long-term investment stance: Taiwan’s economy is solid, with booming semiconductor exports, so the TWD may oscillate between 30 and 30.5 for a long time. Keep forex positions within 5%-10% of your total assets; diversify remaining funds into global assets for better risk control.

Practical tip: Use low leverage for USD/TWD, always set stop-loss orders to protect yourself. Keep a close eye on the Central Bank’s actions and the latest US-Taiwan trade developments, as these directly impact the exchange rate. Don’t put all your eggs in one basket—combine with investments in Taiwan stocks or bonds, so even if currency swings are large, your overall portfolio remains stable.

The Investor’s Benchmark: The 30-Point Psychological Barrier

There’s a widely recognized reference point: 30. Most investors consider USD below 30 to be a good buy, and above 32 to be a sell. If you’re doing long-term FX trading, this can serve as a decision basis.

The appreciation cycle of the TWD has just begun, but the Central Bank’s tolerance is limited. When the appreciation hits a critical threshold, policy intervention will follow. Seize the opportunity, but also guard against risks.