Asia wrap: Keeping powder dry ahead of US election debate

In FX markets today, traders are bouncing within confined ranges, essentially playing a waiting game for fresh inputs. The big focus? Tomorrow’s highly anticipated 90-minute presidential debate at 9 PM ET between Kamala Harris and Donald Trump. With Harris being the less familiar figure, she arguably has more to prove to voters, especially with polls showing a tight race, particularly in key swing states. If a clear winner emerges, it could shake things up in the FX market, pushing traders to position as they would take after the election itself. For now, expect a quiet day—traders are sitting tight for the debate to provide a new direction.

Today’s Chinese trade data delivered a mixed bag: exports came in stronger than expected, while imports, as anticipated, fell short of the mark. Sure, the hefty trade surplus might give GDP a nice boost on paper, but the real story here is China’s persistently weak demand—a red flag for the rest of the global economy. Industrial metals continue to feel the weight of this slowdown, and as for oil? Well, it looks like OPEC+ is scraping the bottom of the barrel when it comes to ideas for propping up prices. If China's demand doesn’t wake up soon, stabilizing oil markets might be a Sisyphean task.

Global markets found a moment of calm overnight as the risk-off mood eased, with US equities staging a modest rebound after Friday's sell-off. Investors, ever the opportunists, took the chance to scoop up bargains as they await the next big test: the US inflation data set to drop on Wednesday. The big question now: Will the US economy glide into a soft landing or brace for something harder?

While the US dollar eked out a 0.3% gain, nudging the Euro, Sterling, and Yen down, this rally feels more like a fragile truce than a decisive victory. Any hint of softer US data could quickly flip the narrative, sending the dollar back into sell mode. Markets are in wait-and-see mode, keeping their powder dry as they look for confirmation that the Fed’s anticipated rate cut cycle will unfold as expected. With nearly 240 basis points of cuts already baked in, the greenback's recent strength seems to be running on borrowed time—now we just need the economic data to play along and confirm those expectations.

China’s yuan (CNH) isn’t exactly on a joyride either, weighed down by domestic deflationary pressures. With consumer inflation barely inching up to 0.6%, the market is holding its breath, waiting for Chinese policymakers to offer more than just hollow promises.

The broader outlook for the yuan remains shaky. Betting polls show Trump leading, and we all know what that likely means: a fresh barrage of tariffs aimed squarely at China, further clouding the horizon for regional markets. Buckle up, because it could get bumby.