Asian Currencies Hold Steady as Dollar Gains Ahead of U.S.-China Trade Talks

Asian currencies traded in narrow ranges on Tuesday, while the U.S. dollar strengthened as upcoming trade talks between Washington and Beijing helped ease fears of a renewed trade war. The Japanese yen weakened further, extending losses from Monday amid expectations that fiscal dove Sanae Takaichi will become Japan’s next prime minister. A parliamentary vote later today is expected to confirm her leadership, solidifying forecasts of increased fiscal stimulus and looser spending policies.

Asian markets initially declined on renewed U.S.-China tensions, but optimism returned following conciliatory comments from U.S. officials, boosting regional currencies. Dovish remarks from Federal Reserve policymakers also fueled speculation of an October interest rate cut. However, lingering uncertainty about the U.S. economy, compounded by a government shutdown delaying key economic data, left investors cautious ahead of the Fed’s upcoming meeting. The dollar index and its futures both edged up 0.1% in Asian trade as investors sought safety.

The Chinese yuan (USD/CNY) traded flat but remained firm following strong midpoint fixes by the People’s Bank of China. Markets focused on potential progress in trade dialogue after U.S. President Donald Trump signaled optimism, saying tariffs on China were “not sustainable” and expressing hope for a fair deal with President Xi Jinping. Still, U.S. Trade Representative Jamieson Greer’s remarks on China’s “economic coercion” over rare earth exports tempered market enthusiasm.

Elsewhere, the Australian dollar (AUD/USD) slipped 0.1% despite Canberra signing a major critical minerals agreement with Washington. The South Korean won (USD/KRW) rose 0.2%, the Singapore dollar (USD/SGD) gained 0.1%, and the Taiwan dollar (USD/TWD) strengthened 0.2%. Indian markets remained closed for a public holiday.