The USD/TWD pair trades near 28.95 after a two-day drop of over 10%, spurred by speculation on Taiwan revaluing the TWD. Asia’s currency rally is driven by expectations that regional currencies could strengthen to secure U.S. trade benefits. Technical analysis indicates a bearish trend, with support at 28.80 and resistance at 29.60.

USD/TWD fell to around 28.90 on Monday, deepening a historic drop with a 5.7% decline adding to Friday’s 4.4% fall. The Taiwan Dollar’s two-day increase of more than 10% is the largest in over thirty years, sparking speculation on Asian currencies appreciating for leverage in U.S. trade talks.

Taiwanese Central Bank Stance

The Taiwanese central bank denies coordinating with the U.S., with the Governor confirming no exchange rate discussions. However, markets viewed the bank’s stance and money inflows from exporters as signalling TWD appreciation. This brought TWD to its strongest since mid-2022, increasing volatility in Asia’s currencies.

This trend affected other major regional currencies; the U.S. dollar fell 0.7% against the yen and Australian dollar, the latter reaching a five-month high. The offshore Chinese yuan peaked at 7.1881. Sentiment shifts as markets move past President Trump’s tariffs, boosting risk-sensitive and emerging market currencies.

The USD/TWD pair has edged slightly higher to around 28.95 following a remarkable slide over the past two sessions. That sharp drop—amounting to more than 10%—was triggered by growing assumptions that Taiwan may permit its currency to appreciate. The reasoning behind this move, which isn’t explicitly confirmed, lies in the possibility that stronger regional currencies might help smooth over trade relations with the United States. Many interpreted this as an unofficial revaluation, or at least a tolerance of stronger pricing from the central bank.

Now, with the Taiwanese dollar at its firmest level since the middle of 2022, price action has become much more erratic. Traders attempting to gauge price direction are watching the 28.80 support area with keen interest; a close beneath it could confirm further downside in the USD/TWD rate. The 29.60 level now acts as the nearest ceiling, likely to face sellers if prices reclaim it.

Currency Market Strategies

The official line from the central bank is that no conversations were held with their U.S. counterparts regarding currency levels, according to their Governor. There’s a clear message of non-intervention. Still, the trading community seems to have taken continued capital inflows and signals in the fixed income market as indirect consent for further strength in the TWD. Exporters’ positioning has likely added to these flows, reinforcing the bullish stance on the currency.

We’ve also seen this sentiment spill over elsewhere in Asia. The yen and the Australian dollar both extended gains against the U.S. dollar, with the latter pushing to its best level in five months. In China, the offshore yuan touched 7.1881, briefly reaching levels that suggest growing confidence in Asia’s broader currency profile. What’s emerging is not just a reaction to short-term fluctuations but a larger repositioning, especially as policy clarity from Washington takes shape well beyond the tariff era introduced under the previous U.S. administration.

For those who operate in derivatives, it’s a moment to monitor implied volatility closely. When spot prices move as quickly as they have done in recent sessions, option premiums may widen, offering chances for spread strategies or gamma trades with favourable skews. The speed and scale of these moves suggest the market is pricing in more than just short-term noise. Macro assumptions are shifting rapidly across major Asian FX pairs, and these may influence broader carry trades, particularly those involving low beta economies.

Rather than chasing moves, it may be more prudent to assess which directional biases have become crowded. Given the unusual scale of TWD appreciation, mean-reversion ideas shouldn’t be ruled out. But we’d be cautious about shorting strength prematurely. Watching how central banks behave in silence—by looking at balance sheet changes, or TWD liquidity supply—may be far more insightful than any public statement.

There’s an underlying assumption now that regional policymakers could tolerate modest appreciation, perhaps to lessen tensions over trade balances or draw in stable inflows. Whether that view holds up will be tested in the coming weeks. What we’ve seen so far reflects a market reassessing fair value in light of new geopolitical undercurrents and realignment of trade policy footing. The challenge moving forward is to separate the speculative unwind from a structural shift in currency policy. We’ll be watching the forward curve and non-deliverable forwards (NDFs) for further clues on sentiment and central bank tolerance.

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