Asia FX Weekly - Which will Trump - Elections or Macro?

Week Ahead FX outlook:

Markets will focus on 3 consequential events next week – who will win in 2024 US Elections, the November Fed meeting, coupled with possible fiscal stimulus announcements out of China’s NPC Standing Committee meeting. On the US Elections, markets have been increasingly moving to price for a Trump victory especially in the month of October, and this has negatively impacted the likes of export-oriented and China linked Asian currencies such as MYR, KRW and THB. US rates markets have moved to price out more than 100bps of Fed rate cuts, although it’s admittedly difficult to decompose how much is due to a more resilient US economy vis-à-vis the US Elections. The results of the Elections will start to stream in 6 November Asia morning time as the polls close, but depending on how close the results are, we may only get clarity in the afternoon or perhaps even later. Our analysis suggests that within ASEAN, MYR, THB and SGD have larger scope for FX weakness relative to others if Trump wins and were to push through his stated policies including tariffs (see Asia FX – US tariffs would hurt growth, but may benefit ASEAN over the medium-term).

Nonetheless, it’s also important to put Asian economies in the broader macro context beyond just the US Elections. On that front, China’s NPSC meeting could be important in shaping expectations for Chinese growth into 2025 even as tariff risks loom. Latest news reports suggest that Chinese authorities are considering to approve around 6 trillion yuan over three years to address local government debt risks, 4 trillion yuan for idle land and property purchases over the next five years, at least 1 trillion yuan for consumption boosting measures, coupled with another 1 trillion yuan for capital injection into large banks. The reports also suggest that the stimulus package could be larger if Trump wins the election. Our framework from analysing three decades of Fed rate cut history suggest that growth differentials, yield differentials and risk sentiment matter for Asian FX beyond whether the Fed is cutting rates, and on that front China’s stimulus policies will be also consequential in helping to shape expectations on Asian growth into 2025 (see Asia FX – the impact of Fed’s easing cycle and more).

Prediction markets are pricing for a good chance of a Trump victory and Red Sweep, although this has come off slightly