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Over the past few months, the exchange rate between the New Taiwan Dollar (TWD) and the US Dollar (USD) has experienced notable fluctuations, influenced by a combination of domestic economic policies, global financial trends, and strategic actions by major financial institutions. This report provides an in-depth analysis of these movements, examining the underlying factors and potential future implications.

Recent Exchange Rate Movements

As of June 27, 2025, the USD/TWD exchange rate stood at 29.0950, marking a 0.41% decrease from the previous session. Over the past month, the TWD has appreciated by 2.73% against the USD, and over the last 12 months, it has strengthened by 10.53%. (tradingeconomics.com)

On July 1, 2025, the TWD surged by 2.5% against the USD, marking its largest single-day gain since May. This appreciation was driven by Taiwanese life insurers and exporters hedging against a weakening US dollar, which has had its worst start to the year since 1973. (ft.com)

Factors Contributing to TWD Appreciation

Several key factors have contributed to the recent strengthening of the TWD:

1. Life Insurers' Hedging Activities: Taiwanese life insurance companies hold approximately $1.7 trillion in overseas assets, predominantly in US bonds. The depreciation of the USD has exposed these insurers to potential losses, prompting them to increase hedging activities by purchasing forward contracts on the TWD. This surge in demand for the TWD has contributed to its appreciation. (ft.com)

2. Exporters' Currency Strategies: Taiwan's export-driven economy, where exports constitute about 60% of GDP, has seen exporters adjusting their currency strategies in response to the weakening USD. By converting USD revenues into TWD more rapidly, exporters have added to the demand for the local currency, further strengthening its value. (ft.com)

3. Central Bank's Stance: The Central Bank of the Republic of China (Taiwan) has maintained a relatively passive stance regarding the TWD's appreciation. While there have been instances of suspected intervention to curb rapid currency movements, the overall approach has allowed market forces to play a significant role in determining the exchange rate. (ft.com)

Impact on Financial Markets

The rapid appreciation of the TWD has had several implications for financial markets:

• Life Insurance Companies: Major insurers like Cathay Financial Holding and Fubon Financial Holding have faced challenges due to their exposure to unhedged US dollar assets. The strengthening TWD has led to potential valuation losses on these assets, prompting increased hedging activities and strategic adjustments. (ft.com)

• Formosa Bond Market: Taiwan's life insurers have been significant participants in the Formosa bond market, which involves US dollar-denominated bonds issued in Taiwan. The appreciation of the TWD and rising US interest rates have led to a decline in new Formosa bond issuances, potentially increasing US interest rate volatility and mortgage costs in the long term. (ft.com)

Technical Analysis

As of June 27, 2025, technical indicators for the TWD/USD pair suggest a neutral outlook:

• Relative Strength Index (RSI): At 51.162, indicating a neutral position.

• Moving Averages: The 5-day simple moving average (SMA) is at 0.03435, signaling a buy, while the 10-day SMA is at 0.03435, also indicating a buy. (investing.com)

These indicators reflect a balanced market sentiment towards the TWD against the USD during this period.

Forecasts and Outlook

According to forecasts updated in June 2025, the TWD/USD exchange rate is expected to experience slight fluctuations over the following months:

• July 2025: 0.0334 USD per TWD

• August 2025: 0.0334 USD per TWD

• September 2025: 0.0335 USD per TWD

These projections indicate a gradual strengthening of the TWD against the USD. (midforex.com)

Conclusion

The recent appreciation of the TWD against the USD has been driven by a combination of life insurers' hedging activities, exporters' currency strategies, and the central bank's policy stance. While the immediate effects have been significant, particularly for life insurers and the Formosa bond market, the long-term implications will depend on future policy decisions, market responses, and global economic conditions. Market participants should closely monitor these developments to navigate the evolving currency landscape effectively.