USD/TWD forecast: Here’s why the Taiwan dollar is soaring

The Taiwan dollar is firing on all cylinders, making it one of the best-performing currencies this year. The USD/TWD exchange rate plunged to a low of 29.62 on Monday, its lowest level since June 2022. 

It has plunged in the last two consecutive weeks and is now down by over 10% from its highest level this year. The Taiwan dollar’s surge is the highest it has had since 1988.

Why the Taiwan dollar is surging

The Taiwan dollar has gone parabolic after Donald Trump sounded optimistic about making trade deals with some top countries. 

In a statement, he said that the US will announce some deals as soon as this week. One of these deals may come from Taiwan, which received a high tariff during Donald Trump’s Liberation Day announcement in April. 

A deal between Taiwan and the United States would be notable because of the volume of trade between the two. Their annual trade is worth about $152 billion. The US exports goods worth over $40 billion to Taiwan, and buy over $87 billion. Most of the goods from Taiwan are in the semiconductor sector, where it dominates.

Taiwan also has a surplus of services compared to the US. Its services exports to the US stood at over $13.2 billion in 2023, while the US sold services worth $10.1 billion.

The large trade deficit explains why Taiwan received one of the biggest tariffs during Trump’s Liberation Day speech. All goods from the country would receive a 34% tariff, a figure that Taiwan’s president said was highly unreasonable. He noted that Taiwan had low tariff rate on US goods. 

Potential trade deal and Taiwan central bank intervention

Therefore, the USD/TWD exchange rate plunged as investors anticipated a deal soon. Such a deal would help the country avoid over $37 billion in additional surcharges from the United States. 

The soaring Taiwan dollar could challenge the economy because it relies heavily on exports. This explains why Taiwan's stock plunged as the currency rose even as foreign funds bought stocks. Data shows that global funds bought Taiwanese stocks worth over $1.2 billion, the biggest inflow in over a month. 

As such, there is a likelihood that the monetary authority will intervene to devalue the currency a bit. That would include increasing the amount of cash in circulation. Taiwan’s central bank has left interest rates unchanged in the last four meetings. 

Read more: How Trump’s tariffs could reshape Asian trade and diminish US influence

FOMC decision

The next key catalyst for the USD/TWD will be a statement by the Federal Reserve on Wednesday. 

Economists expect the bank to maintain interest rates steady at 4.5% in this meeting. It will be the fourth time that the bank has left rates unchanged. 

Officials will likely signal that they will cut interest rates in the coming meetings as the economy slows. 

USD/TWD technical analysis

The weekly chart shows that the USD/TWD exchange rate peaked at 33.27 in April when Trump announced tariffs against Taiwan's goods. It then started a slow retreat as Taiwan became one of the top countries to start negotiations with the US.

The USD to TWD exchange rate crashed as it formed a rising wedge chart pattern, a popular bearish signal. This pattern is made up of two ascending and converging trendlines. The wedge also explains why the USDTWD pair has imploded in the past two weeks.

It has also crashed below a few support levels recently. It moved below the key support at 30.55, the lowest swing in December 2023. It also retreated below the 50-week and 100-week moving averages. 

Therefore, the pair will likely bounce back modestly as Taiwan Monetary Authority intervenes to devalue the currency.