Asia FX muted, dollar up amid cooling trade tensions; yen weakens before PM vote

Investing.com-- Most Asian currencies kept to tight ranges on Tuesday, while the dollar firmed as the prospect of upcoming trade talks between the U.S. and China helped ease some concerns over a renewed trade war. 

The Japanese yen lagged, extending its declines from Monday amid growing conviction that fiscal dove Sanae Takaichi will become prime minister. Japan’s parliament will vote on the matter later in the day. 

Asian markets had initially retreated on renewed trade tensions between the U.S. and China. But conciliatory-sounding comments from U.S. officials helped clear some tensions over the past week, in turn aiding a recovery in Asian currencies. 

Dovish statements from Federal Reserve officials also primed markets for an October interest rate cut. 

But markets still remained uncertain over the U.S. economy, especially as an ongoing government shutdown delayed the release of several key economic indicators. This also left markets flying blind before the Fed’s meeting next week.

The dollar firmed amid this uncertainty, with the dollar index and dollar index futures rising 0.1% apiece in Asian trade. 

Chinese yuan flat, more Sino-US trade dialogue eyed 

The Chinese yuan’s USD/CNY pair moved little on Tuesday, but remained upbeat after a series of strong midpoint fixes by the People’s Bank. 

Focus was chiefly on more dialogue between Beijing and Washington, after U.S. President Donald Trump struck a somewhat conciliatory tone on his trade threats against China.

Trump said last week that high tariffs on China were likely to be “not sustainable,” and that he was still scheduled to speak with President Xi Jinping in two weeks. The U.S. president on Monday evening said he expects to reach a fair deal with China and downplayed risks of a clash over Taiwan. 

But comments from other U.S. officials were less optimistic, with U.S. Trade Representative Jamieson Greer accusing the country of "economic coercion" over its recent rare earth export controls. 

The yuan was also supported by mildly stronger-than-expected third-quarter gross domestic product data, although the print also showed growth at its slowest in a year. 

Japanese yen softens ahead of Takaichi PM vote 

The Japanese yen’s USD/JPY pair lagged its peers on Tuesday, rising 0.2%. 

The yen faced renewed pressure this week after reports showed that Takaichi’s Liberal Democratic Party had secured enough support from allies to form a ruling coalition. 

Japan’s upper and lower houses are now set to vote on a new prime minister, with Takaichi now seen facing little opposition towards her premiership. 

Takaichi– who was elected as leader of the LDP in late-September– is widely viewed as fiscally dovish, and is expected to ramp up government spending and prompt looser fiscal conditions in the country.

The LDP leader needs to gain 233 votes for a majority in the lower house and 124 votes for the upper house. Voting is set to begin from 13:30 JST (04:30 GMT). 

Takaichi is also expected to oppose any more interest rate hikes by the Bank of Japan, with the central bank set to decide on the matter later in October. 

Broader Asian currencies moved in a flat-to-low range, amid a dearth of major trading signals. The Australian dollar’s AUD/USD pair fell 0.1%, even as Canberra signed a major critical minerals deal with Washington. 

The South Korean won’s USD/KRW pair rose 0.2%, while the Singapore dollar’s USD/SGD pair rose 0.1%. 

The Taiwan dollar’s USD/TWD pair rose 0.2%, while Indian markets were closed for a holiday.