New Taiwan Dollar to US Dollar rapidly approaches the psychological level of 30! Comprehensive analysis of 2024 exchange rate trends and investment opportunities

The recent appreciation of the New Taiwan Dollar (NTD) has been truly astonishing. In just two trading days, it surged nearly 10%, with the single-day increase on May 2nd reaching a 40-year high. On May 5th, it broke through the important psychological threshold of 30 yuan, reaching a high of 29.59 yuan. Looking at the whole year, the NTD has appreciated over 8%, roughly comparable to the gains of the Japanese Yen and South Korean Won, but the volatility has been significantly more intense than expected. What market forces are behind this sharp fluctuation in USD/NTD? How should investors respond?

From Panic of Depreciation to Rapid Surge: What’s Going on with the NTD?

Looking back a month, the market was worried that the NTD might depreciate to 34 or even 35 yuan. Who would have thought that within just 30 days, a rapid reversal would occur? The entire Asian currency region indeed faced upward pressure—Singapore dollar up 1.41%, Japanese Yen up 1.5%, Korean Won up 3.8%—but the NTD’s appreciation speed is truly unique.

There are deep reasons behind this abnormal volatility. As a typical export-oriented economy, Taiwan’s net foreign investment as a percentage of GDP is as high as 165%, making the NTD exchange rate particularly sensitive to fluctuations. Before April 2nd this year, the NTD was still in a low depreciation zone of about 1%. The quick reversal shocked the market. The government quickly issued statements to soothe market sentiment—Taiwan President Lai Ching-te made a five-point statement, and the Central Bank Governor Yang Chin-long held a press conference to clarify that there was no intervention in the forex market—but market emotions continued to fluctuate.

The Three Layers of Driving Logic Behind the NTD’s Rapid Rise

Layer 1: Trump’s Tariff Policies Ignited the Fuse

The announcement of the Trump administration’s tariff policies became the trigger for this rally. Expectations that tariffs would be delayed by 90 days, leading to a symmetrical tariff implementation, sparked two major market imaginations: a global procurement wave benefiting Taiwan’s exports in the short term; and the IMF raising Taiwan’s economic growth forecast, boosting Taiwan stocks. These positive signals attracted massive foreign capital inflows, providing strong support for the NTD.

Layer 2: The Central Bank’s Delicate Policy Dilemma

In an emergency statement on May 2nd, the Central Bank attributed the exchange rate volatility to “market expectations that the US may request trading partners’ currencies to appreciate,” but avoided answering whether exchange rate clauses were involved in US-Taiwan negotiations. More critically, the Trump administration’s “Fair and Reciprocal Trade Plan” explicitly made “intervention in the exchange rate” a focus of review. In other words, under the backdrop of US-Taiwan negotiations, the Central Bank faces a situation where it cannot intervene as forcefully as before.

Taiwan’s trade surplus in the first quarter reached USD 23.57 billion, a 23% increase year-on-year, with the US trade surplus soaring 134% to USD 22.09 billion. Without intervention from the Central Bank, the NTD would indeed face enormous upward pressure.

Layer 3: Defensive Hedging Operations in the Financial System

UBS’s latest research indicates that the single-day surge on May 2nd exceeded what traditional economic indicators could explain. Large-scale forex hedging by Taiwanese insurers and export companies, along with concentrated unwinding of NTD financing arbitrage trades, jointly caused this exchange rate movement. UBS warns that if foreign exchange hedging scales return to trend levels, it could trigger USD selling pressure of about USD 100 billion (equivalent to 14% of Taiwan’s GDP).

The Financial Times of the UK points out the core reason—Taiwan’s life insurance industry holds overseas assets worth as much as USD 1.7 trillion (mainly US Treasuries), with long-term insufficient hedging measures. Historically, the Central Bank could effectively suppress NTD appreciation, but now that ability is constrained, forcing insurers to strengthen defensive hedging operations.

How to Judge the Future Direction of USD/NTD?

Limited Upside, 28 Yuan Difficult to Reach

Market consensus expects the Trump administration to continue pressuring the NTD to appreciate, but industry insiders believe that reaching 28 yuan per USD is highly unlikely.

Assessing the Equilibrium Point via BIS Exchange Rate Index

The key indicator for evaluating the fair value of the exchange rate is the Real Effective Exchange Rate (REER) compiled by the Bank for International Settlements (BIS), with 100 as the equilibrium. As of the end of March:

• US Dollar Index approximately 113 → significantly overvalued
• NTD Index approximately 96 → reasonably undervalued
• Yen Index 73, Won Index 89 → Asian export currencies are even more undervalued

Performance in Line with Regional Currencies

Extending the timeline from the start of the year to now, the appreciation of the NTD is roughly in line with the Yen and Won, not an isolated phenomenon:

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

Key Conclusions from UBS Report

Although the recent surge of the NTD is fierce, multiple dimensions suggest the appreciation trend will continue: valuation models show the NTD has shifted from moderate undervaluation to about 2.7 standard deviations above fair value; FX derivatives markets indicate the “strongest appreciation expectation in five years”; and historical experience shows that large single-day increases are often not immediately reversed. UBS advises investors not to prematurely take contrarian positions, but expects that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify.

How to Find Investment Opportunities Amid Exchange Rate Fluctuations?

For Experienced Forex Traders

Seasoned traders can directly engage in short-term USD/NTD trading on forex platforms, capturing daily or intra-day volatility opportunities. If holding USD assets, they can hedge via forward contracts and other derivatives to lock in appreciation gains, implementing structured hedging.

For Novice Investors

Beginners aiming to participate in recent volatility should remember key principles: start with small amounts to test the waters, avoid impulsive increases, as emotional missteps could lead to losses. Many platforms offer small-scale short-term trading of popular currency pairs, suitable for beginners.

Long-term Stable Strategies

Taiwan’s economic fundamentals remain solid, with robust semiconductor exports. The NTD is likely to oscillate between 30 and 30.5 in the long run, maintaining relative strength. For long-term investments, it’s recommended to keep forex positions within 5%-10% of total assets, diversifying remaining funds into global assets to reduce overall risk.

Using low leverage in USD/NTD trading with stop-loss setups is a basic approach for stable arbitrage. Many platforms offer demo accounts to test trading strategies. Keep a close eye on Taiwan’s central bank policies and the latest US-Taiwan trade developments, as these directly influence exchange rate trajectories. Additionally, consider pairing forex trading with investments in Taiwan stocks or bonds to diversify risk and enhance portfolio resilience.

A Decade in Perspective: USD/NTD from 2014 to 2024

Range and Characteristics of Exchange Rate Fluctuations

Over the past decade (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with a total range of 23%. In comparison, the Japanese Yen, historically seen as a safe-haven currency, has experienced a 50% fluctuation (from 99 to 161 USD/JPY), twice that of the NTD, indicating relatively moderate volatility.

Fundamental Drivers of Exchange Rate Trends

Because Taiwan’s interest rate changes are small, the USD/NTD movement mainly depends on Federal Reserve policies. Between 2015 and mid-2018, during China’s stock market crash and the European debt crisis, the Fed slowed its quantitative tightening and continued easing, strengthening the NTD. After 2018, the Fed raised interest rates to maintain high yields and shrink its balance sheet, but the COVID-19 pandemic in 2020 disrupted these plans.

Liquidity Cycles and Exchange Rate Trends

From 2020 to 2022, the Fed’s balance sheet expanded rapidly from USD 4.5 trillion to USD 9 trillion, with interest rates dropping to zero, leading to a weaker dollar and the NTD appreciating to a high of around 27 per USD. Post-2022, US inflation spiraled out of control, prompting the Fed to hike rates aggressively, causing the dollar to surge and the exchange rate to fluctuate within a wider range.

Since the Fed announced tapering of its third round of QE in 2013, US interest rates have risen, capital has flowed back to the US, and the USD/NTD rate has climbed from lows to around 33. Until the Fed ends its current high-interest cycle in September 2024 and begins cutting rates, the exchange rate is expected to retreat to around 32.

Market Central and Investment Reference Points

Over ten years of USD/NTD fluctuations, a common “reference point” is around 30 yuan. The market generally considers below 30 as a buying zone and above 32 as a selling zone. For long-term FX investment, this range can serve as a reference.

The primary determinant of USD/NTD appreciation or depreciation is the US Federal Reserve, not Taiwan’s central bank. Understanding this is crucial for long-term investment decisions.