Hong Kong Dollar to Taiwan Dollar Exchange Rate 2024 Trend Reinterpretation: Will it Break the 4.05 Level After the High?

Current Situation: Why Have the Hong Kong Dollar and New Taiwan Dollar Rebounded to 4.05?

The HKD/TWD exchange rate has recently rebounded from 3.905 to the 4.05 level. The driving force behind this is quite clear—US inflation data exceeded expectations, breaking the market’s hope for a rate cut in March. The US dollar has strengthened again, naturally pushing up the Hong Kong dollar, which is pegged to the dollar.

At the same time, Taiwan faces its own issues. Although DPP candidate Lai Ching-te won the January election, the Legislative Yuan did not secure a majority. Foreign investors are questioning the prospects for cross-strait relations and the new government’s governance ability, putting pressure on the TWD. These two forces combined have caused the HKD and TWD to rise to 4.05.

Core Question: Will the Hong Kong Dollar and New Taiwan Dollar Continue to Rise or Fall?

In the short term, 4.15 is a tough barrier. This level is both the top of the downward channel and the previous high during recent rebounds, representing significant resistance. It’s not easy for HKD/TWD to break above this level.

But in the long term, the probability of decline is higher. As long as the Federal Reserve truly begins to cut interest rates (which is almost certain), HKD/TWD will be forced to weaken. Historical data is clear—during the two rate-cutting cycles in 2008 and 2019, the HKD/TWD fell by 9.88% and 13.17%, respectively. Based on this, if we start from the high of 4.15 and assume a 10% decline, the target would be around 3.735.

Why Do HKD and TWD Follow US Policy Movements?

The HKD’s fate is determined by its linked exchange rate mechanism (7.8 HKD to 1 USD, with a fluctuation band of 7.75–7.85). This system has been in place since 1983, effectively making the HKD a “shadow” of the USD.

When the USD appreciates, the HKD appreciates; when the USD depreciates, the HKD must follow. Therefore, to predict HKD/TWD’s future, the first thing to watch is US interest rate trends.

Another Variable Not to Ignore: Taiwan’s Economy

Taiwan’s economic health directly impacts the strength of the TWD. In the second half of 2021, Taiwan’s GDP growth reached 6.1% (a recent high), attracting a flood of foreign investment into Taiwanese stocks, which strengthened the TWD and caused HKD/TWD to fall to around 3.5.

Conversely, after 2022, Taiwan’s economy cooled significantly, even showing negative growth in early 2023. The TWD depreciated along with the economy, pushing HKD/TWD from 3.5 up to around 4.15. A similar situation in 2015 also confirmed this—when Tsai Ing-wen was elected, tensions across the strait increased, Taiwan’s GDP growth halved from 3.7% to 0.77%, and the TWD weakened noticeably.

Therefore, monitoring Taiwan’s economic outlook, especially capital flows, is equally important for judging the medium-term trend of HKD/TWD.

Global Risk Sentiment Also Plays a Role

When global risk appetite increases, the USD usually appreciates (as a safe-haven asset), and the HKD follows suit. At the same time, capital tends to flee from Asian markets, putting pressure on the TWD. During these times, HKD and TWD tend to rise together.

Conversely, when global risk diminishes and the USD weakens, Taiwan attracts more foreign investment, and both HKD and TWD tend to decline.

Why Do Rumors of HKD Decoupling from the USD Always Resurface?

Whenever Hong Kong’s economy faces downturns, there are calls for the HKD to become independent of the USD to gain more monetary policy flexibility. This was especially prominent after the 1998 Asian financial crisis—when currencies like Japan and South Korea depreciated sharply, attracting large capital inflows and rapid economic recovery. Meanwhile, the HKD remained pegged to the USD, leading to prolonged stagnation in Hong Kong’s stock, property, and real economy.

Recently, these voices have resurfaced again, citing China’s economic rise, the internationalization of the RMB, and tense US-China relations, with some even suggesting switching the peg to the RMB.

But honestly, there’s no need to worry excessively. The HKD’s linked exchange rate system has lasted over 40 years, surviving numerous financial and political upheavals. Unless the US imposes economic sanctions on Hong Kong or a war breaks out—extreme scenarios—this system is unlikely to collapse. Market confidence in the HKD also supports the continued existence of this system.

Practical Recommendations

From an annual cycle perspective— prioritize monitoring US monetary policy trends, followed by Taiwan’s economic outlook. 2024–2025 is likely to see a US rate-cutting cycle, and the overall direction of HKD/TWD should be downward.

From a short-term trading perspective— utilize pattern recognition and technical analysis. Consider shorting near 4.15 with a target of around 3.735; or going long in the 3.735–3.8 range, waiting for a rebound.

Regarding linked exchange rate arbitrage— theoretically, buying and selling HKD within the 7.75–7.85 band can profit from the spread. However, after deducting interest, time costs, and transaction fees, retail investors’ actual profit potential is very limited or even negative. Not recommended for ordinary investors.

Summary

Currently, HKD/TWD is at a high of 4.05, supported in the short term by US dollar strength and TWD weakness. But in the medium to long term, the almost certain US rate cuts will exert downward pressure on the HKD. Combining Taiwan’s economic outlook and global risk sentiment, the probability of HKD/TWD declining is significantly higher than rising. Investors should gradually reduce their HKD exposure at high levels to prepare for potential depreciation in the medium term.