NTD breaks through 30! 2023 NT dollar to USD trend forecast, how long can this appreciation continue?

The performance of the New Taiwan Dollar (NTD) recently can be described as shocking the market. In just two trading days, it surged nearly 10%, with a single-day increase of 5% hitting a 40-year high, directly breaking the psychological barrier of 30 yuan, and during intraday trading, it even touched 29.59 yuan, triggering the third-largest trading volume in foreign exchange market history. What are the driving forces behind this rapid rise? Will the NTD continue to appreciate? For investors looking to seize opportunities from exchange rate fluctuations, how should they position themselves now?

From “NTD Fear of Breaking 35 Yuan” to “Single-Day Surge of 5%”, Market Sentiment Flips

In less than a month, market expectations have completely reversed. At the beginning of April, there were concerns that the NTD might depreciate to 34 or 35 yuan, but by early May, an astonishing rally was underway. On May 2, the NTD against the US dollar soared 5% in one day, closing at 31.064 yuan, rewriting a 15-month high. After the weekend, on May 5, the NTD continued to strengthen, breaking through the 30 yuan mark intraday, with a high of 29.59 yuan.

How exaggerated is this rally? Comparing with other Asian currencies shows the difference. During the same period, the Japanese Yen appreciated by 1.5%, the Korean Won by 3.8%, and the Singapore Dollar by 1.41%, but the NTD surged nearly 10%, with a completely different magnitude. It’s important to note that from the beginning of the year to early April, the NTD was still in a depreciating trend. The speed and strength of this reversal are indeed rare.

As an export-oriented economy, Taiwan is highly sensitive to exchange rate fluctuations—its net foreign investment accounts for up to 165% of GDP. This abnormal appreciation has attracted high attention from the government. President Tsai Ing-wen issued a five-point statement to reassure the market, and the Central Bank Governor Yang Chin-long held a press conference to clarify that there was no intervention in the forex market. However, market sentiment remains volatile.

Behind the Rapid Rise of the NTD: Three Forces Driving the Wave

First, the trigger of Trump’s tariff policy

In early May, Trump announced a 90-day delay in implementing reciprocal tariffs. The market immediately formed two major expectations: a global procurement wave would boost Taiwan’s exports in the short term, and the IMF unexpectedly raised Taiwan’s economic growth forecast, coupled with strong performance in the Taiwan stock market. These positive news flows led to a frenzy of foreign capital inflows, becoming the first wave of driving force behind the NTD’s appreciation.

Second, the delicate position of the Central Bank

Trump’s “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a key review point, putting the Central Bank in a dilemma: historically, the Central Bank could effectively suppress sharp appreciation of the NTD, but now it fears that intervention might lead the US Treasury to label Taiwan as a currency manipulator. Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, up 23% year-on-year, with the US surplus soaring 134% to USD 22.09 billion. Without Central Bank intervention, the NTD faces significant upward pressure. The Central Bank’s statement attributed this to “market expectations for US trade partner currency appreciation,” but did not directly respond to whether Taiwan-US negotiations involve currency clauses.

Third, the “panic-driven operations” in the financial system

According to UBS’s latest research, the abnormal volatility on May 2 exceeded traditional economic indicator explanations. The report points out that large-scale forex hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of NTD financing arbitrage trades, jointly caused this intense currency movement. Notably, Taiwanese life insurers hold overseas assets worth up to USD 1.7 trillion (mainly US Treasuries), yet lack sufficient hedging measures. When the NTD retraces, insurers and exporters may further increase hedging ratios, and restoring forex hedging to trend levels could trigger about USD 1 trillion in dollar selling pressure, equivalent to 14% of Taiwan’s GDP.

Subsequently, Central Bank Governor Yang Chin-long refuted this analysis, emphasizing that life insurers have not significantly increased operations, but concerns about systemic risks in the financial sector remain.

2023 NTD/USD Outlook: How Much More Appreciation Is Possible?

The likelihood of appreciating to 28 yuan is minimal

Although the market generally expects Trump’s administration to pressure the NTD to continue appreciating, the specific extent remains uncertain. Most industry insiders believe that the possibility of the NTD reaching 28 yuan against the US dollar is very low.

Assessing valuation through the REER index

An important indicator for evaluating exchange rate fairness is the Real Effective Exchange Rate (REER) compiled by the Bank for International Settlements (BIS). The index uses 100 as the equilibrium value; above 100 indicates overvaluation, below 100 indicates undervaluation. As of the end of March:

• US dollar index is about 113 → clearly overvalued
• NTD index remains around 96 → reasonably undervalued
• Yen and Won indices are 73 and 89 respectively → more pronounced undervaluation

This suggests the NTD still has some room to appreciate but will not rise indefinitely.

Regional synchronization from the beginning of the year to now

Looking at the longer-term trend since the start of the year, the cumulative appreciation of the NTD against the US dollar is roughly synchronized with the Yen and Won:

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

Although the NTD has recently appreciated rapidly, from a long-term perspective, its trend remains aligned with regional currencies, not an isolated phenomenon.

UBS’s latest forecast: the rally will continue

From multiple dimensions, the appreciation trend of the NTD is expected to persist: valuation models show the NTD 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 large single-day gains like this are unlikely to immediately reverse.

However, UBS also warns that if the trade-weighted index of the NTD rises another 3% (approaching the Central Bank’s tolerance limit), the authorities may intensify intervention to smooth volatility.

How can investors seize the opportunity of NTD appreciation?

Advice for seasoned forex traders

If you are familiar with forex trading and have high risk tolerance, consider two strategies: one is to directly trade USD/TWD or related currency pairs to capture short-term volatility; the other is to hedge existing USD assets using derivatives like forward contracts to lock in the appreciation gains.

Tips for novice investors

For beginners aiming to follow the trend with short-term trades, remember these principles: start with small amounts, avoid impulsive increases, as losing control could end your trading quickly. It’s recommended to begin with small, short-term trades, understand your risk appetite thoroughly, then increase position sizes.

Long-term investment strategies

Taiwan’s economic fundamentals are solid, with booming semiconductor exports. The NTD may fluctuate between 30 and 30.5 yuan in the long run, maintaining a relatively strong position. But remember to keep forex positions within 5%-10% of your total assets, and diversify remaining funds into other global assets to effectively manage risk.

For steady forex gains, use low leverage and always set stop-loss points to protect yourself. Keep a close eye on the Central Bank’s actions and US-Taiwan trade developments, as these directly influence the exchange rate. Don’t put all your eggs in one basket—consider pairing forex with Taiwan stocks or bonds to diversify and reduce overall portfolio risk.

Historical Review: The Past Decade of NTD/USD Fluctuations

Over the past ten years (October 2014 to October 2024), the NTD/USD exchange rate has fluctuated between 27 and 34, with a volatility of 23%, relatively small compared to global currencies. In contrast, the Yen’s fluctuation range is as high as 50% (from 99 to 161), twice that of the NTD.

The main factors influencing the NTD’s rise and fall are actually US Federal Reserve policies, not Taiwan’s central bank. From 2015 to 2018, China’s stock market crashes and the European debt crisis occurred, while the US slowed its QT and continued quantitative easing, strengthening the NTD. After 2018, as the US raised interest rates to shrink its balance sheet, the COVID-19 pandemic in 2020 caused the Fed to double its balance sheet from USD 4.5 trillion to USD 9 trillion, lowering interest rates to zero, leading to dollar depreciation and the NTD soaring to 27 yuan.

However, after 2022, US inflation spiraled out of control, prompting the Fed to rapidly hike interest rates, causing the dollar to surge again, pushing the exchange rate higher. Since the 2008 financial crisis, the Fed launched three rounds of quantitative easing, and starting in 2013, began shrinking its balance sheet, causing the dollar to appreciate from lows to around 33. Until September 2024, when the Fed ended its high-interest cycle and started cutting rates, the exchange rate hovered around 32.

Looking at the decade-long trend, the market’s “majority consensus” is around 30 yuan. Most believe that USD below 30 is worth buying, above 32 should be sold. For long-term forex investment, this can serve as a reference point.

The cyclical appreciation and depreciation of the NTD fundamentally follow global capital flows and Fed policies. Short-term fluctuations are intense, but long-term trends still revert to fundamentals. The current rapid appreciation reflects Taiwan’s relative economic strength but also hints at potential correction risks. A cautious and flexible approach is the rational stance for investors.