What foreign currency will be the most profitable to buy in 2026? A beginner's guide to foreign currency allocation

In the current environment of persistently low NT dollar interest rates, more and more investors are turning to foreign currencies to seek higher returns. But with numerous currencies and complex market changes, many beginners are asking: “What foreign currency should I buy now?” This article will analyze, from multiple perspectives—including market conditions, allocation strategies, and currency choices—how to select the right foreign currency in 2026 to achieve steady appreciation.

The appeal of foreign currency investment lies in leveraging interest rate differentials and exchange rate fluctuations for profit. However, you must understand market logic and establish currency selection criteria to avoid the trap of “earning interest rate spreads but losing on exchange rate differences.”

Core Logic of Foreign Currency Investment: Exchange Rate and Interest Rate Differentials

Many investors see foreign currencies as simple savings tools, but the main sources of profit in foreign currency investment are twofold: exchange rate differences and interest rate differentials.

Exchange rate difference refers to the price difference when buying and selling foreign currencies at different times. Simply put, buy when the currency is relatively cheap, sell after it appreciates, and profit from the spread. During periods of significant global economic volatility, exchange rate opportunities tend to be more abundant.

Interest rate differential is the difference between the benchmark interest rates of different countries. For example, Taiwan’s fixed deposit rate is about 2%, while the US rate is around 5%. This 3% gap represents potential annual income. However, interest rate gains are not entirely stable—if you exchange 33 TWD for 1 USD and earn 5% interest on USD, but ultimately can only exchange back for 30 TWD, the overall result may still be a loss due to exchange rate movements.

Therefore, successful foreign currency investing requires managing risks in both exchange rate and interest rate differentials. Investors must clarify whether they seek stable interest income or aim to profit from short-term exchange rate fluctuations.

Comparing Three Major Currency Allocation Strategies

For investors with different risk tolerances and time plans, there are currently three main foreign currency allocation options. Choosing the right strategy is the first step toward successful foreign currency investment.

Foreign currency fixed deposits are the most traditional approach. You open a foreign currency account at a bank (available to those over 20), deposit funds, and earn periodic interest. The downside is low liquidity—early withdrawal before maturity incurs interest penalties, and in a low-interest environment, returns are limited.

Foreign currency funds offer more flexibility. No lock-in period; you can buy and sell anytime. Yields are between savings and fixed deposits. Common options include money market funds and currency ETFs, which allow investment with TWD, with the fund manager handling currency exchange, enabling you to benefit from both interest and exchange rate differences.

Forex margin trading is the riskiest but offers the highest potential returns. Investors only need to put up a small margin to leverage their position—trading 24/7, T+0 settlement, low entry barriers. Due to high leverage, risk management skills are essential. According to ASIC regulations, leverage on major currency pairs should be below 30x to prevent excessive risk.

Best Currency Choices for Beginners Today

When choosing which foreign currency to buy, three key factors matter: interest rates, exchange rate stability, and international liquidity.

Major global banks typically offer 12 currencies for investment, including USD, AUD, CAD, HKD, GBP, CHF, JPY, EUR, NZD, SGD, ZAR, and SEK. These currencies can be grouped into four categories based on main drivers:

• Policy Currencies (USD, EUR): Influenced mainly by central bank monetary policy. When easing, exchange rates tend to fall; when tightening, they rise. Focus on central bank rate decisions.

• Safe-Haven Currencies (JPY, CHF): Issued by stable economies with low political risk. During global turmoil, these currencies often appreciate, making them ideal for risk hedging.

• Commodity Currencies (AUD, CAD): Tied to commodity prices. For example, Australia is a major iron ore exporter; when iron ore prices rise, the AUD tends to appreciate. These are friendly to beginners due to more predictable price movements.

• Emerging Market Currencies (CNY, ZAR): Offer high interest rates but come with higher risks due to political instability, lower liquidity, and larger spreads. Beginners should be cautious.

For novice investors, a balanced approach is to allocate funds to both safe-haven and commodity currencies. The USD, as the global settlement currency, remains the top choice for Taiwanese investors.

Five Major Drivers of Currency Fluctuations

Understanding what causes exchange rate movements is crucial for profit. The five most influential factors are:

• Inflation Rate: Lower inflation countries tend to see their currencies appreciate because prices rise more slowly, preserving purchasing power. High inflation countries often see their currencies depreciate, often accompanied by higher interest rates to combat inflation.

• Interest Rates: Higher interest rates attract foreign investment, increasing demand for the currency and pushing up its value. Decisions by major central banks like the Fed or ECB often trigger global currency swings.

• Government Debt: Countries with high debt levels are less attractive to foreign investors, leading to currency depreciation. Market perceptions of fiscal health influence exchange rates even before official policy moves.

• Trade Conditions (export/import prices): When export prices rise faster than import prices, the country’s income increases, boosting demand for its currency and causing appreciation.

• Political Stability and Economic Performance: Stable governments and strong economic growth attract investment, leading to currency appreciation. Conversely, political turmoil or recession can cause depreciation.

Entry Strategies for Beginners

Theoretical knowledge is just the foundation; practical operation is key. There are two main profit strategies: buy low and sell high and sell high and buy low.

While traditional investments often follow a “buy low, sell high” approach, forex allows two-way trading. If you expect a currency to appreciate, buy it; if you expect it to depreciate, sell it and buy back after it falls, profiting from the difference. This flexibility is a major advantage.

To profit in forex, you should:

1. Conduct fundamental analysis before selecting targets. Understand the economic policies, interest rates, and export sectors of the country behind the currency. For example, if you believe the US will cut rates while Japan’s rates stay steady, consider going long JPY/USD.

2. Develop and strictly follow a trading plan. Based on your risk tolerance, experience, and market conditions, set clear entry, exit, stop-loss, and take-profit points. Consider market risks, transaction costs, and slippage.

3. Maintain emotional stability. Market volatility can trigger emotional reactions, but impulsive trading often leads to losses. Keep learning, accumulate experience, and improve decision-making over time.

4. Choose a reliable trading platform. The platform should offer low fees, rich tools, diverse products, fast execution, and clear regulation. Platforms regulated by authorities like ASIC or CIMA provide better investor protection.

Five Investment Tips and Risk Warnings

1. Only invest in currencies you understand. Beginners should focus on the most traded major currency pairs (USD, JPY, EUR) to avoid pitfalls. Market news is complex, but core currency pairs are more transparent.

2. Keep an eye on exchange rate movements and international news. Currency rates are affected by market, economic, and political factors. Regularly check sources like CNBC, Bloomberg, Yahoo Finance for updates on central bank policies and economic data.

3. Build a diversified portfolio. Avoid putting all funds into a single currency or strategy. For example, holding both USD fixed deposits and AUD funds can hedge risks. Once diversified, avoid over-trading.

4. Learn to set stop-loss and take-profit orders. Especially important in margin trading, to prevent large losses. Many successful traders recommend limiting intra-day trades to 2 to avoid excessive costs and slippage.

5. Time your entries carefully. Don’t chase the market; plan your trades and execute according to your plan. Wait for clear trends—often confirmed over 5 minutes or longer. Use different timeframes like 30-minute or 2-hour charts for better judgment.

Finally, remember that any strategy without practical testing is just theory. Before real trading, practice with demo accounts provided by trading platforms to evaluate your strategies and risk management in a virtual environment.