Asian FX Talking: Just sign here…

For almost a year now, the fate of the major currency pairs, as well as Asian FX units has risen and fallen on the twists and turns of trade negotiations between the US and China.

The early stages of this could be characterised as “bad trade means weak Asian FX”. But recent news has been consistently positive. Not only does a deal of some sort look likely to replace the uneasy truce that exists, but the outcome could be more wide-ranging than we’d imagined previously.  

However, little of this is evident in recent FX price action. Year-to-date, only CNY shows consistent appreciation. More idiosyncratic factors seem to be weighing on other currencies, and it’s probably no longer safe to consider Asian FX as a bloc.

Having said this, even if markets are now fully factoring in a more favourable trade outcome, that leaves open the shrinking, but still, present risk that all of this could still fall apart at the last minute. One only needs to cast their mind back to the second Trump-Kim summit.   

Nonetheless, it’s clear there are many more games in town than just the US-China trade war. Auto tariffs still loom large, with not only a EURUSD impact but potentially strong implications for the JPY and KRW. Then there is the global semiconductor slump. This is, if anything, a more pernicious influence on economies in the region than the trade war, particularly semiconductor behemoths like Korea, but also most of Southeast Asia.

While Asian economic policymakers will breathe a sigh of relief once (if) the trade deal is eventually signed, they will be happier, and their exports will look healthier, once 5-G is rolled out.