The recent performance of the Taiwanese dollar has been absolutely wild. After I looked at the data, I realized just how strong this appreciation wave has been. In just a few days, the TWD to USD exchange rate surged from the mid-34s straight through 30, and the single-day increase hit a 40-year high—something that simply has no parallel among Asian currencies. Although the Japanese yen and the Korean won are also rising, the TWD’s breakneck surge is still truly striking.

Taking a closer look at the underlying reasons, it all comes down to U.S. tariff policies. A large number of foreign investors believe Taiwan’s exports could benefit in the short term, and on top of that, the central bank this time seemingly can’t intervene in the FX market as forcefully as it did in the past—so they rushed in. In addition, Taiwan’s life insurance companies’ large-scale hedging of dollar-denominated assets has further amplified this volatility. UBS’s report notes that even just getting back to normal hedging levels could trigger more than $100 billion in selling pressure—so this risk should not be underestimated.

From a longer-term perspective, the 2022 TWD-to-USD trend mainly depends on the Federal Reserve’s interest rate hike and cut cycle. Over the past decade, the TWD has fluctuated between 27 and 34; compared with the yen’s 50% fluctuation range, it has been relatively stable. Now, the market generally believes that the 28 mark is difficult to break through, and the BIS’s real effective exchange rate index also shows that the TWD is currently at a reasonably low level.

If you ask me how the outlook looks from here, I think the TWD will likely continue to range-bound between 30 and 30.5 in the short term, but the central bank may step up intervention when the appreciation expands by another 3% or so. Personally, I think instead of chasing short-term price swings, it’s better to use low leverage to trade USD/TWD, and pair it with some investments in Taiwan stocks or bonds for diversification—this way, risk can truly be controlled. You should closely watch the central bank’s actions and the progress of trade negotiations between the U.S. and Taiwan, because both will directly affect the direction of the exchange rate.