Friday forex follies: Staring down both end's of the coin

Asian equities slumped on Friday, dented by weak earnings and a tech stock rout that echoed from Wall Street, where the recent strain on Silicon Valley giants spread across global markets. Tech stocks were the main casualty in Asia’s market, as high valuations and muted earnings expectations put investors on edge, sparking a wave of caution.

In currency and bond markets, the mood was one of restraint as investors awaited the U.S. jobs report—a key release that typically influences the dollar and sets the tone for interest rate expectations.

But there’s a bigger play here: the looming U.S. election outcome. A Trump win, coupled with his likely stance on raising import tariffs, could drastically alter the trajectory for rate cuts, potentially slowing them or even bringing them to a halt. As a result, FX markets are keeping a wary eye on both the data and the election, knowing that a Trump victory would hold real sway over currency moves in the months ahead.

I figured the yen-buying frenzy might have worn off by now, but it seems central bank surprises have a way of lingering. Markets clearly interpreted Ueda’s press conference as signalling a potential BoJ rate hike in December, pushing JPY up 0.4% against the dollar, and it's sticking around beyond my 12 -24 hour do not fade a surprise central bank rule. Still, Japan’s substantial real yield differentials with the U.S. may weigh on the yen in the coming weeks. And with Friday’s payrolls looming, there’s no shortage of suspense.

Currently, the market is running 10-year USTs around 4.3% ahead of what’s expected to be a low US Payrolls read—consensus is at 105k, the lowest since 2020. Admittedly, it’s a bit of a head-scratcher. We’re in an environment hungry for any reason to offload bonds, even momentarily, before the election, where the trade setup leans toward higher yields if Trump wins. Odds have tightened after substantial betting on a Harris win in Michigan, narrowing the White House race to 61% for Trump and 39% for Harris. This might explain Bitcoin’s dip and the dollar’s non-reactionary tone today.

As for payrolls, it’s hard to call. A high surprise (like ADP) could jolt both bond and FX markets, but if we get a low read near consensus, it could be explained away by the hurricane factor and might not pack as much punch for bonds. However, if we see a really low number, say 50k or below, expect a clear drop in bond yields and a potential USDJPY dip to the 151 range. The kicker? This all lands just before the election, where traders are already eyeing a yield test higher on a Trump victory. The market may be hoping for a reason to sell bonds and scoop up dollars, if only briefly—but let’s see what the numbers reveal first.

In currency markets, sometimes it feels like we’re staring down both ends of a coin toss, especially as we head into next week’s U.S. presidential election. As I shift from “betting” mode to a more cautious risk management stance, it’s clear we’re navigating uncharted waters. The dollar’s outlook is balancing on a knife-edge, with both bullish and bearish scenarios possible depending on who takes the Oval Office.

Let’s run with a Harris victory scenario first: here, we’d likely see a rapid unwinding of “Trump trades,” allowing markets to re-focus on rate-cut tailwinds poised to support global growth, especially in Asia’s FX landscape. This could fuel strength across ASEAN currencies, with the ringgit well-positioned to benefit as the dollar eases back.

On the flip side, if Trump returns to the White House, the landscape could turn stormy. Expect fresh tariffs on Chinese imports, a move that would reverberate across ASEAN economies. Malaysia and Singapore, given their high export dependencies on both the U.S. and China, could face notable pressure. Beyond tariffs, heightened U.S.-China tensions could stymie Chinese investment, casting a chill on business confidence and ASEAN trade flows.

The prevailing sentiment is that a Trump win would boost the dollar broadly, but the real fireworks could be against Asian currencies.