Asia FX Talk - US Presidential Debate Face-Off

Ahead Today

G3: US Presidential debate, US CPI

Asia: South Korea Bank Lending

Market Highlights

Markets will focus on the first (and only) US Presidential debate between former President Trump and Vice President Harris today. The last debate catalysed a series of events which ultimately led to President Biden stepping down as the Democrat Party nominee, with both Trump and Harris essentially neck and neck today. More than just the policy specifics, what could move election probabilities (and as a consequence markets) are very often the intangibles –this could include perception of factors such as gender, age, temerity, and perhaps even empathy. Markets will also watch for specific policy platforms from both candidates. We highlight at least three key ones to watch for that could move markets including FX. First, whether Trump will re-emphasise his publicly stated tariff plans such as a 10-20% tariff on all countries and 60% tariff on imports from China. Second, what are the plans for taxation and as a consequence the overall US fiscal deficit trajectory. Last but not least, the views on the US Dollar and Federal Reserve independence. Ceteris paribus, a Trump win and Republican sweep is more likely to boost the Dollar and lift US rates, but we note that this cycle is quite different from 2017 given that the Fed is also cutting while exact sequencing of tariff implementation remains unclear (see FX Weekly – All to play for).

Beyond the Presidential debate, the macro data yesterday pointed incrementally to a softening outlook for the US consumer, with the NFIB small business index sentiment weakening from the previous month together with several sub-components also highlighting muted labour market pressures. Results from some banks together with auto companies also pointed to uncertainty clouding the outlook heading into 2025. Today’s US CPI numbers will also be a focus, with markets looking for a +0.2%mom rise, but the composition may change somewhat the pickup in used car auction prices is likely to be offset by softer services inflation.

Regional FX

Asian FX markets traded slightly on the backfoot against the US Dollar ahead of the US Presidential Election debate, and weighed down in particular by weak sentiment out of China. USDCNH broke past the 7.13 level, while underperformers included TWD (-0.8%), PHP (-0.8%), IDR (-0.6%) and THB (-0.5%). China’s exports were stronger than expected rising 8.7%yoy led by a pickup in auto exports, although some of this could be due to front-loading ahead of tariffs. The bigger concern to the market however seemed to have been the much softer than expected import growth of 0.5%yoy, which together with the weak CPI and PPI numbers continue to suggest a deceleration in domestic economic momentum and as such raises pressure for more stimulus down the road. Meanwhile, the Philippines’ trade deficit was wider than expected at US$4.9bn, up from US$4.3bn the previous month. The improvement in exports growth to +0.1%yoy was more than outweighed by strong imports of +7.2%yoy boosted by both capital goods and consumer goods imports. The pickup in imports fits in with our view of a gradually wider trade and current account deficit into 2025 as domestic demand improves. We think PHP should underperform Asian FX into 2025 as the trade deficit widens and BSP remains dovish, but is also unlikely to see the sharp weakness we saw in 2Q2024 given lower US rates and manageable oil prices.