Asia FX Talk - US election day

Ahead Today

G3: US presidential election, ISM services index, France industrial production, RBA policy meeting

Asia: Philippines inflation, Caixin China PMI, Indonesia Q3 GDP, Singapore retail sales

Market Highlights

The US presidential election will be held today with far-reaching economic consequences for Asian economies. The election race has tightened and is neck to neck in key swing states. Market uncertainty is high, resulting in sharply rising volatility across Asian currencies. The implied volatility for USDCNH during the election week has surged to nearly 15%, which is the highest on record based on available Bloomberg data.   

Both presidential candidates – Kamala Harris from the Democratic Party and Donald Trump from the Republican Party – present starkly different economic and trade policy stance. The biggest shock to Asian economies would come from a victory for Trump, whose proposed plan is to sharply raise import tariffs to improve trade balances, shift manufacturing production to the US, and combat China’s rising global influence. Trump has called for imposing 10%-20% tariffs on all imported goods and a 60% tariff on all imports from China.

Notably, China would face tariff from a position of weakness. And a sharp depreciation of CNY could be needed to offset the impact of tariff shock on the Chinese economy. For ASEAN, we estimate that a combination of a 60% tariff on Chinese imports and a universal 10% tariff on all other countries would cut GDP by 1.6% in Singapore, 1.5% in Malaysia, 0.8% in Thailand, 0.7% in Vietnam, and 0.5% in the Philippines and Indonesia. If the rest of the world retaliates against Trump’s tariff, the hit to global trade would amplify the negative shock on Asian economies and markets.   

Regional FX

Asia ex-Japan currencies have appeared to price out some “Trump trades”, with KRW (+0.7%), SGD (+0.5%), and CNH (+0.5%) leading gains against the US dollar during US election week. Notably, the PBOC has anchored onshore CNY within +/- 0.5% of its daily fixing rate since August. A Trump win could still lead to a weaker CNY with spillover effects on regional currencies. But there is little reason for a sharp CNY devaluation until there’s clarity on the timing and scope of duties to be imposed on China, if any.    

A key data highlight for Asia today is Indonesia’s Q3 GDP. We expect Indonesia’s growth to stay resilient, slowing only marginally to 5%yoy, given some loss of momentum in consumer credit and business lending growth as well as a softening of the manufacturing PMI over Q3.