## The New Taiwan Dollar Exchange Rate Rapidly Reverses! The Hidden Drivers Behind the Shift from Valuation Panic to Breaking the 30 Yuan Barrier

Remember a month ago, the market was worried that the New Taiwan Dollar might depreciate to the 34-35 range. Who would have thought that in just four weeks, the TWD exchange rate would undergo a dramatic turnaround? This sharp appreciation has come suddenly and fiercely, becoming one of the most watched financial events recently.

### In just two days, it surged nearly 10%! The TWD hits multiple historical highs

The currency market in early May was turbulent. On May 2nd, the TWD against the USD soared by 5% in a single day, marking the largest single-day gain in 40 years. The closing rate that day was 31.064, a 15-month high. Then on May 5th, the TWD continued its strong momentum, rising another 4.92% in a single day, approaching the psychological level of 30, with a low of 29.59, shocking the market.

Cumulative gains over two trading days approached 10%—such abnormal volatility triggered a surge in forex trading volume, the third-largest in history. Notably, from the beginning of the year to mid-April, the TWD was still depreciating, with only a 1% increase, making this rebound even more abrupt.

Although the US tariff policy announcement led to a general rise in major Asian currencies—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%—the appreciation of the TWD was significantly more pronounced than other regional currencies, truly standing out.

### The three main drivers behind the TWD exchange rate movement: Tariff policies, the central bank’s dilemma, and market panic

**First Driver: Trump’s tariff delay sparks expectations**

The US government announced a 90-day postponement of reciprocal tariffs, which quickly created two market consensus: first, a surge in global procurement, benefiting Taiwanese exporters in the short term and providing strong support for the TWD against the USD; second, the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with impressive stock market performance. These positive signals prompted large foreign capital inflows, fueling the first wave of appreciation.

**Second Driver: The central bank’s policy dilemma**

On May 2nd, the central bank issued a statement but avoided specifics, attributing currency fluctuations to “market expectations of US pressure on trading partners to appreciate,” without mentioning whether US-Taiwan tariff negotiations involved exchange rate clauses.

The core contradiction lies in the fact that Trump’s “Fair and Reciprocal Trade Plan” explicitly targets “currency manipulation” for review. This means that if the central bank intervenes forcefully to appreciate the TWD, it could be labeled as a currency manipulator by the US Treasury. Considering Taiwan’s first-quarter trade surplus reached $23.57 billion (up 23% year-on-year), and the US trade surplus with Taiwan surged 134% to $22.09 billion, the absence of central bank intervention would put enormous upward pressure on the TWD.

**Third Driver: Concentrated hedging by financial institutions triggers chain reactions**

A UBS research report pointed out that a 5% single-day increase exceeds what traditional economics can explain. Besides emotional factors, large-scale hedging operations by Taiwanese insurers and exporters, along with concentrated unwinding of financing arbitrage trades, amplified the volatility.

UBS specifically warned: when the TWD retraces, insurers and exporters may further increase hedging. Restoring foreign exchange hedging to historical levels could release about $100 billion in USD selling pressure (equivalent to 14% of Taiwan’s GDP). British media directly pointed out that Taiwanese life insurers hold $1.7 trillion in overseas assets (mainly US Treasuries) but lack sufficient FX hedging measures, leading to “panic-driven” increases in hedging activities.

### Will the TWD continue to appreciate? How to interpret key indicators

**Rational assessment: REER index reveals the truth**

The Bank for International Settlements (BIS) compiles the Real Effective Exchange Rate (REER) index, with a baseline of 100 indicating equilibrium. As of the end of March:
- The US dollar index is about 113, indicating a significant “overvaluation”
- The TWD index remains around 96, in the “reasonably undervalued” zone
- The Japanese yen and Korean won indices are even lower (73 and 89 respectively), indicating greater undervaluation

This suggests that the TWD’s room for further appreciation may be limited.

**Comparison of appreciation: TWD and regional currencies rising in tandem**

Looking at the longer-term trend from the start of the year, the appreciation of the TWD is roughly in line with regional currencies:
- TWD up 8.74%
- JPY up 8.47%
- KRW up 7.17%

The sudden surge over two days doesn’t seem extraordinary when viewed over a longer period—most Asian currencies are collectively rising.

**UBS multi-dimensional analysis: Will the appreciation trend continue?**

From valuation, derivatives markets, and historical experience, UBS believes upward pressure on the TWD remains: valuation models have shifted from undervalued to about 2.7 standard deviations above fair value; FX derivatives show the “strongest appreciation expectations in five years”; historical patterns indicate that such large single-day jumps are rarely followed by immediate reversals.

UBS advises investors not to prematurely take contrarian positions, but expects that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), official intervention will intensify. The market generally considers the 28 yuan level difficult to break.

( How to find trading opportunities amid TWD appreciation

**For forex experienced traders**

You can directly trade USD/TWD on forex platforms to capture short-term or intraday fluctuations; or use derivatives like forward contracts to lock in appreciation gains.

**For novice investors**

Avoid greed-driven over-leverage; start with small amounts. Use platforms with demo functions to practice trading strategies, confirm feasibility before entering with small capital. Setting stop-loss points is essential—controlling risk is more important than chasing returns.

**Long-term investment approach**

Taiwan’s economic fundamentals are solid, with strong semiconductor exports. The probability of the TWD oscillating in the 30 to 30.5 range over the long term is high. It’s recommended to keep forex positions at 5%-10% of total assets, with the rest diversified into global assets to reduce overall portfolio risk.

Use low-leverage operations, closely monitor central bank actions and the latest US-Taiwan trade developments—these two factors directly influence the TWD exchange rate. Avoid concentrated bets; combining with Taiwan stocks or bonds can better control risk exposure.

) A decade in review: the long-term pattern of the TWD exchange rate

Over the past decade (October 2014 to October 2024), the TWD against the USD has fluctuated between 27 and 34, with a volatility of 23%. Among global currencies, this is relatively stable—by comparison, the Japanese yen’s volatility reaches 50% (99–161), twice that of the TWD.

The main driver of TWD’s ups and downs is actually the US Federal Reserve. From 2015 to 2018, as the Fed slowed QT and shifted to easing, the TWD began to strengthen; after 2018, as the US raised interest rates, the TWD faced pressure; in 2020, with the pandemic, the Fed’s balance sheet expanded from $4.5 trillion to $9 trillion, rates fell to zero, and the TWD soared to 27. Post-2022, US inflation spiraled out of control, the Fed rapidly raised rates, the dollar rebounded, and the TWD depreciated to the 32–33 range. It wasn’t until September 2024, when the Fed started cutting rates, that the exchange rate retraced to around 32.

Historical experience shows that most market participants have a “psychological price”: USD below 1:30 is seen as a buy point, above 32 as a sell point. For long-term FX investments, this can serve as a reference framework.

But remember: changes in the central bank’s stance, progress in US-Taiwan trade negotiations, and Fed policy directions can all reshape the future rhythm of the TWD exchange rate.