The Future Trend of the US Dollar Behind the Rise and Fall of New Taiwan Dollar — Analysis of Major Currency Market Changes Since 2025

In Spring 2025, Taiwan’s financial markets experienced a rare exchange rate fluctuation not seen in over a decade. The New Taiwan Dollar (NTD) appreciated sharply within just a few trading days, setting multiple historical records and becoming the most remarkable currency rally in Asia. Behind this rollercoaster movement lies a complex interaction of U.S. policy cycles, international trade patterns, and market expectations. To understand why the NTD suddenly surged and how the U.S. dollar’s future trend might evolve, we need to analyze this currency market drama from multiple perspectives.

Spring Currency Market Shakeup: The Triple Impact of Breaking 30 NTD/USD

From early 2025 through spring, investor sentiment toward the NTD underwent a dramatic reversal. Just a month earlier, markets worried that the NTD might break below 34 or even 35 against the dollar. Yet, within only 30 days, market sentiment flipped dramatically. Under the influence of U.S. policy shifts, the NTD staged a stunning rally.

On a certain trading day, the NTD/USD exchange rate soared over 5% in a single day—its largest single-day gain in 40 years—closing around 31. The following trading days saw the NTD break the psychologically important 30 mark, reaching a high of 29.59, triggering the third-largest trading volume in foreign exchange history. In just two days, the appreciation totaled nearly 10%, a level of volatility that is unique among Asian currencies.

Meanwhile, regional currencies also appreciated but not nearly as dramatically. The Singapore dollar rose about 1.41%, the Japanese yen 1.5%, and the Korean won 3.8%. Compared to these, the NTD’s rapid surge was truly eye-catching. As a typical export-oriented economy, Taiwan’s net foreign investment relative to GDP is as high as 165%, making its economy particularly sensitive to exchange rate fluctuations. Top government officials quickly took communication measures to soothe the markets.

U.S. Policy Cycles and Asian Currencies Revaluation: The Dilemma for Central Banks

The catalyst for the NTD’s appreciation was the change in U.S. policy. When the U.S. announced adjustments to reciprocal tariff policies, two major market expectations emerged: a global procurement surge benefiting Taiwan’s exports in the short term, providing strong support for the NTD; and the IMF unexpectedly raising Taiwan’s economic growth forecasts, with Taiwan stocks performing well—these positive news flows led to a rush of foreign capital inflows.

However, the central bank faced a delicate dilemma. On one hand, Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-over-year, with the surplus with the U.S. soaring 134% to $22.09 billion, exerting significant upward pressure on the NTD. On the other hand, the U.S. government’s “Fair and Reciprocal Trade Plan” explicitly emphasized “currency intervention” as a key review point, making it difficult for the central bank to intervene strongly as in the past. They worry that intervention might be labeled as currency manipulation by the U.S., while also needing to manage market volatility—an extremely challenging situation.

A deeper structural issue is that Taiwan’s life insurance industry holds about $1.7 trillion USD in overseas assets, mainly U.S. Treasuries, but lacks sufficient hedging measures against exchange rate risk. Historically, the Taiwan central bank could effectively suppress the NTD’s sharp appreciation, but this traditional intervention model is now under challenge. Panic-driven hedging by financial institutions, combined with exporters’ currency hedging needs, contributed to this abnormal volatility. Analysis suggests that restoring foreign exchange hedging/deposits to trend levels could trigger about $100 billion USD in dollar selling pressure—equivalent to 14% of Taiwan’s GDP—posing a significant potential risk.

Technical and Sentiment Analysis: Assessing the True Value of the NTD

To determine whether the NTD has been overvalued, one key indicator is the Bank for International Settlements’ (BIS) real effective exchange rate index (REER). This index uses 100 as a baseline; above 100 suggests possible overvaluation, below 100 indicates undervaluation risk.

As of over a year ago, BIS’s REER showed the USD index at about 113—significantly overvalued—while the NTD index hovered around 96, still in a reasonably undervalued zone. Notably, other major Asian export currencies were even more undervalued, with the Japanese yen and Korean won indices at 73 and 89, respectively. This indicates that, valuation-wise, the NTD still has room to appreciate relative to other Asian currencies.

UBS’s latest research report states that, despite the recent strong rally, the NTD’s appreciation trend is likely to continue from multiple dimensions. First, valuation models show the NTD has shifted from moderate undervaluation to about 2.7 standard deviations above fair value. Second, foreign exchange derivatives markets indicate the strongest bullish outlook in five years. Third, historical experience suggests that large single-day gains like this are rarely immediately reversed. UBS advises investors not to prematurely bet against the trend but also notes that when the trade-weighted index of the NTD rises another 3% (approaching the central bank’s tolerance limit), official intervention may intensify to smooth volatility.

Exchange Rate Outlook and Investment Strategy for the Next 12 Months

Looking at the longer-term performance since the start of the year, the cumulative appreciation of the NTD against the USD is roughly in line with the Japanese yen and Korean won. The NTD has appreciated about 8.74%, the yen 8.47%, and the won 7.17%. The differences are minor. This suggests that, despite the recent rapid appreciation, the longer-term trend of the NTD remains synchronized with regional currencies.

Market consensus expects the U.S. government to exert short-term pressure for further NTD appreciation, but precise magnitude remains uncertain. Most industry insiders believe that the NTD reaching 28 to 29 per USD is unlikely. Instead, the market expects the NTD to hover within the 30 to 30.5 range. The central bank may intervene modestly if the NTD’s rally becomes too aggressive, but such interventions are likely to be cautious, balancing U.S. exchange rate expectations with domestic financial stability.

For investors, understanding the future of the USD hinges on tracking Federal Reserve (Fed) policy directions. Over the past decade, the main driver of the NTD’s fluctuations has been the Fed, not Taiwan’s central bank. When the U.S. enters a rate hike cycle, the dollar tends to strengthen, putting downward pressure on the NTD; when the Fed shifts to easing, the dollar weakens, and the NTD appreciates. Currently, the U.S. remains in a high-interest environment, but expectations of long-term easing persist, providing a structural basis for the NTD’s appreciation.

Practical Investment Tips: How to Capitalize on Currency Fluctuations

For experienced forex traders with high risk tolerance:

Consider short-term trading of USD/TWD or related currency pairs on trading platforms, capturing daily or intra-day volatility. If you hold USD assets, you can hedge using forward contracts or derivatives to lock in the appreciation gains. This strategy suits traders who can react quickly to market changes.

For novice investors new to forex:

Start with small amounts to test the waters; avoid impulsive chasing or frequent position adjustments. A poor mindset can lead to mistakes. Many platforms offer demo accounts—use virtual funds to practice and refine your strategies before risking real money.

For long-term asset allocators:

Taiwan’s fundamentals remain solid, with strong semiconductor exports supporting the NTD’s long-term strength. However, forex exposure should be limited to 5-10% of total assets. The remaining portfolio should be diversified into global equities, bonds, and other assets to reduce overall currency risk.

Operational checklist:

1. Set clear stop-loss levels—protect your principal regardless of bullish or bearish positions.
2. Monitor central bank actions closely—policy shifts often trigger sharp exchange rate movements; stay updated on official announcements.
3. Follow Taiwan-U.S. trade developments—negotiation progress and exchange rate clauses directly influence market expectations.
4. Use low leverage—avoid excessive leverage to prevent liquidation during volatile swings.
5. Diversify assets—hold local stocks or bonds as natural hedges.
6. Review positions regularly—weekly assessments of exchange rate trends and your investment assumptions help adjust strategies timely.

Long-Term Perspective: The Decade-Long Logic of the NTD’s Trajectory

Reviewing the past decade (2014–2024), the NTD/USD exchange rate has mostly oscillated between 27 and 34, with a volatility of about 23%. Compared to global currencies, Taiwan’s currency has relatively low volatility; for instance, the yen’s fluctuations reached 50%, twice that of the NTD.

The long-term trend of the NTD is primarily influenced by the Fed’s policy cycle. Between 2015 and 2018, amid China’s stock market crash and the European debt crisis, the U.S. slowed its quantitative tightening and maintained easing, strengthening the NTD. Post-2018, as the Fed began a rate hike cycle to shrink its balance sheet, the NTD faced depreciation pressure. However, the COVID-19 pandemic in 2020 prompted the Fed to implement massive easing, expanding its balance sheet from $4.5 trillion to $9 trillion, with rates dropping to zero, weakening the dollar and pushing the NTD to a record high of 27 per USD.

After 2022, due to runaway U.S. inflation, the Fed adopted aggressive rate hikes, causing the dollar to surge and reversing the NTD’s appreciation trend, keeping the exchange rate around 32. The trend only resumed after the Fed ended its tightening cycle and began cutting rates in September 2024.

Market participants often refer to an “invisible ruler”—around 30—believed to be a key reference point. Many see the USD below 30 as attractive for buying, and above 32 as a signal to reduce holdings. This 30-level reflects both historical average costs and the traditional policy tolerance of the central bank. For long-term currency investment, this level serves as an important benchmark.

Looking ahead, the USD’s future trajectory over the next year will depend on U.S. economic growth, inflation trends, and Fed policy decisions. If the U.S. economy soft-lands and inflation gradually declines, the Fed may continue to cut rates modestly, weakening the dollar and allowing the NTD to appreciate further. Conversely, if the U.S. economy unexpectedly weakens, the Fed might pause or even resume rate hikes, strengthening the dollar and slowing the NTD’s appreciation. Investors should closely monitor monthly U.S. employment data, CPI figures, and Fed statements to adjust their currency outlooks accordingly.