NTD breaks through the 30-dollar mark! Grasp the investment logic behind exchange rate fluctuations, and a ten-year comparative analysis of the South African Rand against the US Dollar.

Data Speaks: Why Has the NT Dollar Become an Asian Currencies’ Appreciation Black Horse?

From May 2 to May 5, in just two trading days, the New Taiwan Dollar (NTD) against the US dollar recorded an astonishing nearly 10% surge. Specifically, on May 2, it jumped 5% in a single day, marking the largest single-day increase in 40 years, closing at 31.064 yuan; on May 5, it continued to rise by 4.92%, with intraday breaking the psychological 30 yuan barrier, reaching a high of 29.59 yuan.

How crazy is this appreciation wave? Just look at other Asian currencies: Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%, while the NT dollar soared nearly 10%. Among Asian currencies, its performance stands out. What economic logic is hidden behind this?

Compared to this short-term volatility, examining the ten-year trend of the South African rand against the dollar can help clarify the long-term drivers of a currency’s appreciation or depreciation. The recent sharp fluctuations of the NT dollar are the result of multiple factors resonating in the short term.

The Three Layers of Logic Behind the NT Dollar’s Surge

Layer 1: Trump’s Tariff Policies Ignite the Fuse

The Trump administration announced a 90-day delay in implementing reciprocal tariffs, which immediately created two market expectations: a surge in global corporate procurement boosting Taiwan’s exports; and the IMF raising Taiwan’s economic growth forecast. These positive signals attracted massive foreign investment, becoming the first momentum behind the NT dollar’s appreciation.

By early May, Taiwan’s first-quarter trade surplus reached $23.57 billion, up 23% year-on-year, with the US trade surplus soaring 134% to $22.09 billion. The large net foreign exchange inflow, without intervention from the central bank, naturally increased pressure for the NT dollar to appreciate.

Layer 2: The Central Bank Faces a Policy Dilemma

On May 2, the central bank issued a statement attributing the currency fluctuation to “market expectations that the US may request trading partners to appreciate their currencies,” but avoided answering whether “US-Taiwan negotiations involve exchange rate clauses.”

This is not an intentional puzzle. The US “Fair and Reciprocal Trade Plan” explicitly emphasizes “currency intervention” as a review focus. If the central bank intervenes forcefully as in the past, it risks being accused of currency manipulation. This dilemma heightened market concerns that the central bank’s intervention space is limited, further fueling expectations of NT dollar appreciation.

Layer 3: Panic-Driven Operations by Financial Institutions Amplify Volatility

UBS reports that the 5% surge of the NT dollar on May 2 far exceeds what traditional economic indicators can explain. Besides market sentiment, large-scale FX hedging operations by Taiwanese insurers and exporters, along with concentrated closing of NT dollar financing arbitrage trades, jointly caused this abnormal movement.

UBS warns that if insurers and exporters further increase hedging ratios, restoring FX hedging/deposits to trend levels could trigger about $100 billion in USD selling pressure, equivalent to 14% of Taiwan’s GDP. This is a structural risk that warrants close attention.

Exchange Rate Rationality: Is There Still Room for NT Dollar Appreciation?

Valuation Using BIS Real Effective Exchange Rate (REER) Index

REER is set at 100 as the equilibrium value; above 100 indicates overvaluation, below 100 indicates undervaluation. As of end-March data:

• US dollar index around 113 → clearly overvalued
• NT dollar index around 96 → reasonably undervalued
• Yen index at 73, Korean won at 89 → generally undervalued among Asian export countries

This suggests the NT dollar still has room to appreciate, but the potential magnitude should be limited.

UBS’s Latest Forecast Highlights

UBS’s valuation model shows the NT dollar has shifted from moderate undervaluation to a fair value exceeding the mean by 2.7 standard deviations; FX derivatives markets reflect the “strongest appreciation expectation in five years”; historical experience indicates that such large single-day gains are unlikely to immediately reverse.

However, UBS expects that when the trade-weighted index of the NT dollar rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth out volatility. In other words, the psychological barrier of 28 yuan may be difficult to break.

Comparison of Year-to-Date Gains

Extending the observation period to early 2025, the appreciation of the NT dollar is roughly in sync with other major Asian currencies:

• NT dollar up 8.74%
• Yen up 8.47%
• Won up 7.17%

It appears everyone is rising. Despite the recent rapid appreciation, from a longer-term perspective, its trend remains aligned with regional currencies.

Investment Strategies: How to Capture Opportunities from NT Dollar Appreciation?

For Experienced Forex Traders

If you are familiar with FX markets, consider two strategies: directly trading USD/TWD on forex platforms to capture short-term fluctuations over the next few days or even within the day; or if you hold USD assets, hedge via forward contracts or other derivatives to lock in the appreciation gains.

Risks for Beginners

For new forex investors, remember these principles:

First, start with small amounts to test the waters—avoid impulsive large positions. Over-leveraging can lead to psychological stress or losses.

Second, use demo accounts offered by forex platforms to practice and test your strategies before risking real money.

Third, always set stop-loss points to protect yourself—don’t rely on luck.

Long-term Investment Allocation Advice

Taiwan’s economic fundamentals are solid, with booming semiconductor exports. Long-term, the NT dollar should oscillate between 30 and 30.5 yuan, remaining relatively strong. But remember:

• Keep FX positions within 5%-10% of total assets; avoid over-concentration
• Diversify remaining assets into other global assets (stocks, bonds, etc.) to reduce overall risk
• Use low leverage when trading USD/TWD to avoid leverage risks
• Stay alert to central bank actions and US-Taiwan trade developments, as these directly influence exchange rates

Historical Review: Why Has the NT Dollar Been Relatively Stable Over the Past Decade?

Looking back over ten years from October 2014 to October 2024, the NT dollar’s exchange rate against the US dollar fluctuated between 27 and 34 yuan, with a volatility of only 23%, relatively small compared to global currencies. In contrast, the Japanese yen, often seen as a safe-haven currency, fluctuated by 50% (from 99 to 161 yuan), twice as volatile as the NT dollar.

The Main Driver of NT Dollar Fluctuations Is the Federal Reserve, Not the Central Bank

The NT dollar’s rate has little change in interest rates; its movements mainly depend on US Federal Reserve policies:

From 2015 to 2018, influenced by China’s stock market crash and European debt crisis, the Fed slowed its balance sheet reduction and resumed quantitative easing, strengthening the NT dollar.

Post-2018, as the Fed began rate hikes, the COVID-19 pandemic in 2020 led the Fed to expand its balance sheet from $4.5 trillion to $9 trillion and cut rates to zero. This caused the US dollar to depreciate sharply, and the NT dollar surged to 27 yuan.

After 2022, due to runaway US inflation, the Fed launched rapid rate hikes, causing the dollar to rebound, and the NT dollar’s rate returned to 31–32 yuan.

In September 2024, after the Fed ended its high-rate cycle and started cutting rates, the exchange rate again hovered around 32 yuan.

The Market’s “Psychological Benchmark”

Historical experience shows a consensus: when USD/NTD is below 30, it’s a good buy; above 32, it’s a good time to sell. This “psychological level” can serve as a reference in long-term FX investing.

Conclusion

This wave of abnormal NT dollar appreciation results from a threefold resonance of Trump’s policies, central bank policy shifts, and financial institutions’ operations. Valuation indicators suggest the NT dollar still has room to appreciate, but the potential is limited. Investors should avoid blindly chasing highs, fully understand the risks, and choose appropriate strategies based on their risk tolerance. Whether engaging in short-term trading or long-term allocation, controlling leverage, diversifying risk, and monitoring policy developments are the keys to protecting oneself amid exchange rate fluctuations.