Over the past week, the New Taiwan Dollar (TWD) has experienced a significant appreciation against the US dollar, surging nearly 6% in a month and marking its largest single-day gain since the 1980s. This rapid strengthening is part of a broader trend among Asian currencies, driven by factors such as the weakening US dollar, geopolitical uncertainties, and shifts in global investment strategies.

Implications for Taiwan's export sector

It has opened the door to worrying times for Taiwan's export minded industries, however. The country’s economy is heavily export-oriented, with key industries like semiconductors, electronics and machinery playing pivotal roles. A stronger Taiwan dollar makes Taiwanese goods more expensive for foreign buyers, potentially reducing demand and squeezing profit margins for exporters. This is particularly concerning for smaller and medium-sized enterprises (SMEs), which may lack the financial tools to hedge against currency risks.

Taiwan's export performance has remained robust in recent months despite the threat of appreciation. In February 2025, exports grew by 31.5% year on year to $41bn, exceeding predictions. However, sustained currency strength could erode this momentum, especially if competitors with weaker currencies offer more attractive pricing as is expected.

Broader economic effects

More immediately, the sudden appreciation has prompted Taiwanese investors, particularly life insurers with substantial US dollar-denominated assets, to reassess their portfolios. Concerns over potential losses from unhedged positions have led to increased repatriation of funds, further strengthening the TWD according to a number of domestic and international media.

Responses

To mitigate the adverse effects of a strong currency, Taiwanese exporters will now likely need to enhance product value through innovation and quality improvements, making their offerings less price-sensitive in addition to adopting financial instruments to hedge against currency fluctuations.

On the streets of Taiwan, however, many people have seen savings in US dollar form plummet in value in the past week and remain sceptical about just how and when it will recover following rumours of currency manipulation, that appear on the surface at least, to centre on the ruling Democratic Progressive Party hoping to appease the US as the threat of tariffs by the Trump administration remain an ever-present.

Addressing these claims, Premier Cho Jung-tai recently said that "the central bank has always abided by the law in observing fluctuations in exchange rates" according to the English language daily Taipei Times. Addressing comments made by a senior banking official "that there were signs of speculators seeking to disrupt the NT dollar", the premier added that "such illegal market behaviour would not be tolerated" in Taiwan, according to the same publication.