The New Taiwan Dollar appreciates in wave! Analyzing the investment logic and opportunities of USD/NTD from the 30-dollar threshold

Strong Valuation Expectations Emerge, $30 Price Level Becomes a Key Threshold

Recently, Asian currencies have collectively strengthened, but the performance of the New Taiwan Dollar (NTD) has been particularly impressive. In just a few trading days, this appreciation trend not only broke records but also ignited enthusiasm in the investment community. Many investors are beginning to wonder: how long will this NTD rally last? What does the psychological level of 30 NT dollars really represent?

According to the latest research from UBS, the NTD’s appreciation trend is expected to continue. Valuation models show that the NTD has shifted from moderate undervaluation to a fair value that is 2.7 standard deviations higher, and the foreign exchange derivatives market indicates the “strongest appreciation expectation in 5 years.” All these data points tell us that the era of exchanging 30 USD for NTD is being rewritten.

Understanding the True Meaning of 30 Yuan: Psychological Barrier or Technical Support?

For investors, 30 yuan is more than just a number—it represents the market consensus on the value of the NTD. Over the past decade (October 2014 to October 2024), the USD/NTD exchange rate has fluctuated between 27 and 34, with a volatility of about 23%. Within this range, 30 yuan has always been considered a “reasonable price” in many minds.

Looking at the real effective exchange rate index (REER) compiled by the Bank for International Settlements (BIS), the data as of the end of March shows an interesting contrast: the US dollar index is about 113, indicating a significant overvaluation; meanwhile, the NTD index remains around 96, in a reasonably undervalued state. This suggests that relative to the major global currencies basket, the NTD still has room to appreciate.

In comparison, the REER indices for the Japanese Yen and Korean Won are only 73 and 89, respectively, highlighting a more pronounced undervaluation of Asian export currencies. Against this backdrop, the logic for NTD appreciation becomes even more compelling.

Three Major Factors Driving the NTD Rally: From Policy to Market Structure

Policy-Driven: Market Expectations from Tariff Negotiations

The Trump administration announced a 90-day delay in implementing reciprocal tariffs, triggering a chain reaction in the markets. There is a widespread expectation that a wave of centralized procurement will sweep the globe. Taiwan, as a typical export-oriented economy with net foreign investment accounting for up to 165% of GDP, benefits from this expectation, providing strong support for the NTD. Meanwhile, the IMF unexpectedly raised Taiwan’s economic growth forecast, and the Taiwan stock market performed well, all of which attracted massive foreign capital inflows.

Structural Risks: Amplification by Financial Sector Hedging Operations

UBS research found that, beyond market sentiment, large-scale currency hedging operations by Taiwanese insurers and corporations, along with concentrated unwinding of NTD financing arbitrage trades, have jointly caused this exchange rate movement. Taiwanese life insurers hold up to $1.7 trillion in overseas assets (mainly U.S. Treasuries) but have long lacked sufficient hedging measures. The reason is that the central bank has historically been able to effectively suppress sharp NTD appreciation, but the situation has now changed.

The central bank faces a dilemma: it must prevent excessive exchange rate volatility while also avoiding interventions that could be labeled as currency manipulation by the U.S. Treasury. Simply restoring foreign exchange hedging to trend levels could trigger about $100 billion in dollar selling pressure (equivalent to 14% of Taiwan’s GDP), a potential risk that warrants close attention.

Technical Perspective: Historical Patterns as Reference

After a rapid short-term appreciation, UBS’s historical analysis suggests that similar large single-day gains often do not immediately reverse. This technical insight supports the continuation of the upward trend.

Future Outlook: How Difficult Is It to Reach 28 Yuan?

The market generally considers the possibility of the NTD reaching 28 USD/NTD to be very slim. Most industry insiders believe that this level would require more extreme circumstances to trigger.

A more realistic expectation is that the NTD will fluctuate within the 30 to 30.5 range. UBS predicts that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), official intervention may increase to smooth out volatility.

Looking at regional benchmarks since the beginning of the year, the NTD has appreciated by 8.74%, the Yen by 8.47%, and the Won by 7.17%. All three are roughly in the same range. This indicates that, despite the recent rapid appreciation, the long-term trend of the NTD remains synchronized with regional currencies.

Investment Strategies: How to Capitalize on This Wave?

For Forex Traders:

Engage in short-term trading of USD/TWD or related currency pairs on forex platforms, capturing daily or intraday fluctuations. If you already hold USD assets, you can hedge using forward contracts and other derivatives to lock in the appreciation gains.

For Beginner Investors:

Start with small amounts to test the waters; avoid impulsively increasing positions. Proper mental management is crucial. Practice trading popular currency pairs with demo accounts. Use low leverage when trading USD/TWD and always set stop-loss orders to protect capital.

For Long-term Investors:

Taiwan’s economic fundamentals remain solid, with robust semiconductor exports and a relatively strong NTD in the long run. It’s advisable to keep foreign exchange exposure within 5%-10% of total assets, diversify holdings across other global assets to reduce overall risk. Investing in Taiwan stocks or bonds can help balance the portfolio, even amid currency fluctuations.

Continuously monitor actions by the Taiwan central bank and the latest US-Taiwan trade developments, as these will directly influence the exchange rate trajectory.

A Decade in Review: The Volatility Characteristics of the NTD

Over the past ten years, USD/NTD has experienced multiple cycles. Between 2015 and mid-2018, global economic risks increased, the US slowed down QT and pushed forward QE, leading to a strengthening of the NTD. After 2018, the US began a rate hike cycle, but the COVID-19 pandemic struck suddenly in 2020, causing the Federal Reserve’s balance sheet to expand from $4.5 trillion to $9 trillion in a short period, with rates dropping to zero, leading to USD depreciation and the NTD briefly hitting 27 per USD.

Post-2022, US inflation spiraled out of control, prompting the Fed to rapidly hike rates, causing the dollar to rebound and the exchange rate to fluctuate within a narrow range. It wasn’t until September 2024, when the Fed ended its high-interest cycle and started cutting rates, that the rate returned to around 32.

The real effective exchange rate (REER) remains a key indicator of exchange rate fairness. Historical experience shows that the USD/NTD movement is primarily determined by the Federal Reserve’s policies, not Taiwan’s central bank. The Fed’s policy stance—whether QE or rate hikes—is the fundamental driver of long-term exchange rate trends.

The Investment Logic of the $30 Era

Most investors believe that USD below 30 is worth buying, while above 32 should be considered for selling. These psychological levels serve as important reference points for long-term currency investment.

Currently, the NTD’s appreciation expectation remains strong, but the central bank’s tolerance has an upper limit. The smartest approach for investors is to develop layered investment plans based on a thorough understanding of the currency drivers, capturing short-term opportunities while maintaining balanced long-term asset allocation. The $30 level is no longer an unreachable target but a new normal that requires serious attention.