Will the Taiwanese dollar continue to depreciate? The new exchange rate landscape from the surge in 2025 to 2026

In early May 2025, the New Taiwan Dollar (NTD) surged nearly 10% within just two trading days, with a single-day increase reaching a 40-year high. This astonishing exchange rate wave shifted market expectations from “fear of breaking below 35” to “continued appreciation.” Nearly a year after that sharp rise, will the NTD still depreciate? The answer depends on actual market trends.

The Behind-the-Scenes of the Single-Day Rally in May: Three Drivers of NTD Appreciation

That weekend in early May changed the market’s overall perception of the NTD. On May 2, the USD/NTD exchange rate hit a record single-day increase of 5%, closing at 31.064. After the weekend market closure, on May 5, the NTD continued to rise by 4.92%, breaking the psychological 30-level during trading and reaching a high of 29.59. This intense volatility triggered the third-largest trading volume in foreign exchange history.

In just two trading days, the NTD appreciated nearly 10%. In comparison, other major Asian currencies rose more modestly—Singapore dollar up 1.41%, Japanese yen up 1.5%, Korean won up 3.8%—making the NTD’s rally stand out among regional currencies.

The first driver behind this appreciation was the Trump administration’s tariff negotiations. When the U.S. announced a 90-day delay in implementing reciprocal tariffs, markets anticipated a global procurement surge. Taiwan, as a major export economy, naturally benefited, leading to a rush of foreign capital inflows. Simultaneously, the International Monetary Fund unexpectedly raised Taiwan’s economic growth forecast, and Taiwan’s stock market performed strongly, further boosting foreign confidence in the NTD’s appreciation prospects.

The second driver stemmed from the central bank’s policy dilemma. The Trump administration’s “Fair and Reciprocal Trade Plan” explicitly scrutinized “currency intervention,” putting the central bank in a bind—effective measures to curb sharp NTD appreciation in the past might now be criticized by the U.S… Meanwhile, Taiwan’s trade surplus in Q1 reached $23.57 billion, up 23% year-on-year, with the surplus against the U.S. soaring 134% to $22.09 billion. Without intervention, the NTD faces significant upward pressure.

The third driver involved structural operations by financial institutions. Taiwanese insurers hold about $1.7 trillion USD in overseas assets, mainly U.S. Treasuries. Relying heavily on the central bank to suppress currency appreciation, insurers lack sufficient hedging preparations. When appreciation expectations emerge, insurers and exporters increase hedging activities, and a wave of closing out NTD financing arbitrage trades amplifies exchange rate volatility. UBS research warns that if foreign exchange hedging scales return to trend levels, it could trigger about $100 billion USD in dollar selling pressure—equivalent to 14% of Taiwan’s GDP.

Central Bank Dilemmas and Market Risks: Structural Imbalances Emerge

The volatile exchange rate in May exposed deep structural issues within Taiwan’s financial system. Central Bank Governor Yang Jinlong faces an almost insoluble dilemma: continued intervention risks being labeled a currency manipulator by the U.S., while non-intervention could trigger systemic financial risks.

As a typical export-driven economy, Taiwan’s net foreign investment relative to GDP is as high as 165%, making its economy highly sensitive to exchange rate fluctuations. When insurers’ hedging demand is suddenly released in the short term, it can trigger intense market swings. Even more dangerous, if the central bank attempts to intervene again, it might spark a larger hedging wave—markets could anticipate eventual abandonment of intervention and preemptively position themselves.

Expectations vs. Actual Trends: The Second Half of 2025

At the time of the original publication, market forecasts for the NTD’s outlook mainly came from UBS. The bank believed the appreciation trend would continue, and when the trade-weighted index of the NTD rose another 3% (approaching the central bank’s tolerance limit), official intervention might intensify. Meanwhile, the foreign exchange derivatives market showed the “strongest appreciation expectation in five years,” with valuation models indicating the NTD had shifted from moderate undervaluation to a fair value 2.7 standard deviations higher.

Looking back at the second half of 2025, the actual appreciation and depreciation of the NTD showed partial alignment with expectations and some deviations. In an environment of a weakening dollar and abundant global liquidity, the NTD remained relatively strong. However, the central bank’s intervention gradually took effect—adjusting policy tools to smooth excessive volatility and prevent further sharp appreciation.

Long-term Positioning of the NTD: Strong Currency or Illusory Appreciation?

To assess whether the NTD will continue to depreciate, key indicators are essential. The most informative is the Bank for International Settlements’ Real Effective Exchange Rate (REER) index. With 100 as the baseline, values above 100 indicate overvaluation, below 100 suggest undervaluation.

As of late March, the USD index was around 113, indicating a clear “overvaluation.” The NTD index was about 96, still in a “reasonably undervalued” zone. In contrast, other Asian export currencies—such as the Japanese yen and Korean won—had indices of 73 and 89, respectively, showing more significant undervaluation. From a valuation perspective, the NTD still has room to appreciate.

However, extending the view from the recent abnormal volatility over the past month to the entire year shows that the NTD’s appreciation of 8.74% aligns with regional currency trends: the yen up 8.47%, won up 7.17%. This suggests the NTD’s rally is not an anomaly but part of a regional appreciation trend.

Looking at a decade of history, the USD/NTD exchange rate has fluctuated between 27 and 34, with a volatility of about 23%. In comparison, the USD/JPY has a volatility of up to 50% (from 99 to 161), indicating the NTD’s relative stability. The movement of the NTD is primarily driven by the U.S. Federal Reserve’s policies rather than Taiwan’s central bank—during the 2015 European debt crisis, the NTD strengthened; after 2022, the Fed’s rapid rate hikes weakened the NTD; and after late 2024, with the Fed easing, the NTD gradually appreciated again.

Market psychology also plays a role: “30” has become a key psychological threshold. Most investors believe that USD below 30 is a good buy, while above 32, it’s a sell. This “psychological price” largely reflects the market’s consensus on the NTD’s fair value.

Will the NTD Depreciate? Outlook

In straightforward terms, the probability of the NTD depreciating significantly in the foreseeable future is relatively low. The main reasons are:

1. Taiwan’s economic fundamentals remain solid—robust semiconductor exports and expanding trade surpluses provide fundamental support for appreciation.
2. The Federal Reserve’s policy outlook remains uncertain; if the dollar weakens further, regional currencies are unlikely to reverse their appreciation trend.
3. The implicit intervention mechanisms of the central bank have shown effectiveness, smoothing market volatility.

However, risks do exist—structural imbalances in Taiwan’s financial system have yet to improve. Black swan events (such as a breakdown in U.S.-Taiwan trade negotiations or geopolitical risks) could suddenly reverse the appreciation trend. Additionally, if the Fed adopts a more aggressive rate hike stance, a strong dollar could force the NTD to adjust downward.

Considering all factors, the likelihood of the NTD remaining in the 30 to 30.5 range with relative strength is high, while a significant drop below 28 is unlikely. Long-term investors should not be overly bearish on the NTD but remain cautious—appropriate foreign exchange asset allocation and diversification into stocks, bonds, and other assets are prudent risk management strategies.

For investors monitoring the NTD, key focus areas include central bank policy developments, U.S.-Taiwan trade negotiations, and the Fed’s upcoming decisions, as these will directly influence the medium-term direction of the currency.