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Asian markets opened the week with a gentle risk-on tone as investors responded to signs that geopolitical tensions could ease. Most regional currencies gained modestly against the US dollar, reflecting improved sentiment after US President Donald Trump expressed confidence that his upcoming meeting with Chinese President Xi Jinping would yield a “fantastic” trade deal. The comments offered relief after months of uncertainty over tariff disputes and supply-chain frictions.
Renewed hopes of trade progress encouraged selective buying across Asia’s FX complex. The USD/KRW traded around 1,420.10 per dollar, up 0.1%, while the USD/SGD appreciated to 1.2927. The AUD/USD, often seen as a barometer for China-related sentiment, edged 0.1% higher to 0.6518. Traders interpreted the rhetoric as a signal that both Washington and Beijing are seeking to prevent another escalation in economic hostilities. That shift in tone helped unwind parts of the defensive positioning that had dominated regional trading earlier in the month.
Improved tone in currencies mirrored a wider rebound in risk assets. Regional equities advanced, with technology-heavy markets such as South Korea’s KOSPI and Taiwan’s TAIEX (TW:006204) leading the move. The pickup in local stocks coincided with softer dollar demand, suggesting foreign investors were adding exposure to Asia’s growth-sensitive sectors. Bond yields across emerging Asia stayed relatively steady, highlighting that the latest rally was driven more by sentiment than by a fundamental reassessment of growth or inflation prospects.
Still, the optimism remains fragile. The U.S. and China have repeatedly cycled through similar phases of rapprochement and tension. Beijing’s earlier hints about restricting rare-earth exports remain a potential flashpoint, given their strategic role in global manufacturing. If the talks fail to produce tangible progress, the dollar could quickly regain strength as traders revert to defensive positioning. In that case, high-beta currencies like the Australian and Korean won would likely surrender their gains.
For now, the base case is that cautious optimism prevails through the coming days as markets await details of the Trump–Xi engagement. The next catalysts include any pre-summit briefings and updates on the U.S. government shutdown, which officials hinted could end within the week. A resolution there would reinforce the recovery in risk sentiment and sustain modest pressure on the dollar.
The alternative scenario would involve renewed trade rhetoric or policy surprises from either side, reviving safe-haven demand and pushing the DXY index back toward recent highs. Investors holding short-dollar positions should remain alert to this possibility.
Investor Takeaway
For portfolio managers, the near-term setup favors selective long positions in Asian FX, particularly in currencies with strong external balances such as the Singapore dollar. Yet conviction should stay low until negotiations translate into concrete policy steps. A sudden deterioration in talks or fresh trade barriers could reverse sentiment quickly. Maintaining partial hedges through the DXY or U.S. Treasuries remains prudent while the outcome of U.S.–China diplomacy and the government funding impasse are still in play.