Recently, the trend of the Taiwanese dollar exchanging for US dollars has been truly extraordinary, soaring 10% in just a few days, directly breaking the 30 yuan mark. Watching the market, I can hardly believe the rally in early May — a 5% single-day increase hitting a 40-year high, which is unique among Asian currencies. During the same period, the Japanese yen only appreciated by 1.5%, and the Korean won by 3.8%, while the Taiwanese dollar skyrocketed like a rocket, causing the market to explode instantly.

Looking closely at the underlying reasons, Trump's tariff policies were the trigger. He announced a 90-day delay in implementing reciprocal tariffs, leading the market to anticipate a wave of global procurement, and Taiwan, as a major export country, naturally benefited. Plus, the IMF raised Taiwan’s economic growth forecast, prompting a rush of foreign capital inflows — this was the first wave of upward momentum for the Taiwanese dollar. But what truly surprised people was that Taiwan’s insurance industry and exporters, in order to hedge, concentrated their dollar-selling operations, and this "panic" hedging directly amplified the volatility. It is said that just restoring the hedging scale to normal levels could trigger a $100 billion US dollar sell-off, equivalent to 14% of Taiwan’s GDP, which is indeed a frightening number.

Regarding the future trend of the Taiwanese dollar against the US dollar, I believe there is still room for appreciation, but it won’t rise infinitely. UBS’s report shows that, based on valuation models, the Taiwanese dollar has shifted from undervalued to relatively fair, and the foreign exchange derivatives market reflects the strongest appreciation expectations in five years. However, the 28 yuan level should be very difficult to break through, and most industry insiders believe the likelihood is very low. If we look at the real effective exchange rate (REER) index from the Bank for International Settlements, the US dollar index is as high as 113, indicating overvaluation, while the New Taiwan dollar remains around 96, relatively reasonable and slightly undervalued. This suggests that the Taiwanese dollar still has room to appreciate but not excessively.

In the long term, I think the trend of the Taiwanese dollar against the US dollar will fluctuate between 30 and 30.5 yuan. Taiwan’s economic fundamentals are solid, with strong semiconductor exports, which support the Taiwanese dollar’s long-term strength. But if you want to trade this wave, my advice is to avoid heavy positions. Short-term trading can be done with small capital to test the waters, capturing a few days of volatility — don’t keep adding to your position. For long-term investing, foreign exchange holdings should account for no more than 5%-10% of your total assets, and the rest should be diversified into other global assets. Be sure to set stop-losses to protect yourself, and keep an eye on central bank actions and US-Taiwan trade developments, as these will directly influence the trend of the Taiwanese dollar against the US dollar.

Looking back over the past decade, the Taiwanese dollar against the US dollar has fluctuated between 27 and 34 yuan, with a volatility of only 23%, which is quite stable compared to the 50% volatility of the yen. The ups and downs of the Taiwanese dollar mainly depend on the Federal Reserve’s interest rate hikes and cuts, rather than Taiwan’s central bank. During the 2020 pandemic, the Fed printed money aggressively, causing the Taiwanese dollar to surge to 27 yuan; after 2022, the Fed rapidly raised interest rates to combat inflation, and the dollar rebounded to around 32 yuan. Most people have a mental benchmark: buy dollars below 30 yuan, sell above 32 yuan, which can serve as a reference point for long-term currency trading.