Asian Currencies Tumble as Projected Trump Win Propels Dollar

Introduction

On Wednesday, Asian currencies took a significant hit, with the Singapore dollar and Thailand’s baht experiencing the most substantial drops. The Mexican peso also plummeted to a two-year low as the US dollar surged following projections that Republican Donald Trump would win the US presidential election. This article delves into the market reactions and the implications of Trump’s potential victory on global currencies, particularly in Asia.

Impact on Asian Currencies

Singapore Dollar and Thai Baht

The Singapore dollar fell by 1.3% to a three-month low, marking its worst session since August 2015. Similarly, Thailand’s baht slumped by as much as 1.9% to a two-month low, its most significant one-day drop since February 2023. These declines illustrate the market’s immediate reaction to the possibility of Trump’s presidency and the anticipated economic policies.

Other Affected Currencies

• Chinese Yuan: The yuan dropped by 0.8%.
• Mexican Peso: The peso reached a low of 20.7080, the weakest since August 2022.
• South Korean Won, Malaysian Ringgit, and Indonesian Rupiah: These currencies were also hit hard due to their export-oriented economies and sensitivity to potential slowdowns in China’s growth. The Malaysian ringgit, Southeast Asia’s best-performing currency this year, fell by 1.5%, and the Indonesian rupiah declined by 0.7% to a nearly three-month low.

Market Analysts’ Perspectives

Inflationary Policies and Market Adjustments

Analysts foresee Trump’s proposed tariff and immigration policies as inflationary, likely leading to higher prices, bond yields, and a stronger dollar. These factors could undermine the currencies of US trading partners, particularly in Asia. Ken Cheung Kin Tai, Chief Asian Foreign Exchange Strategist at Mizuho Bank, stated, “The market is making positioning adjustments to prepare for a possible Trump victory.”

Vulnerable Currencies

The Chinese yuan and Mexican peso are viewed as the most vulnerable to a stronger dollar and the imposition of heavier tariffs under Trump. MUFG analysts noted that a Trump win would negatively impact the South Korean won, Singapore dollar, Thai baht, and Malaysian ringgit more than other Asian currencies due to their reliance on export growth.

Regional Central Banks’ Responses

Malaysia and Indonesia

Malaysia’s central bank kept interest rates unchanged and monitored the US election closely, ready to manage market volatility and ensure orderly conditions. The Indonesian central bank also prepared to stabilize the rupiah through interventions if necessary.

Regional Stock Markets

Stock markets in the region showed mixed reactions. Equities in Manila fell by 1.2%, while those in Taipei and Mumbai saw gains of 0.5% and 0.9%, respectively.

Trump Trades Surge as Trump Claims Victory

Investors’ Reactions

Investors reacted to Trump’s projected victory by buying dollars, bitcoin, and stocks while selling bonds. US stock futures hit record highs, and Treasury yields jumped. Bitcoin broke the $75,000 mark for the first time, reflecting investor expectations of a Trump win.

Market Implications

Matthew Ryan, Head of Market Strategy at Ebury, remarked, “Not only are markets positioning themselves for a comfortable Trump victory in the electoral college, but the prospect of a Republican-controlled Congress.” This outcome could have extensive implications for tax, trade policy, and US institutions.

Sector-Specific Impacts

Assets expected to benefit from Trump’s pledges to raise tariffs, cut taxes, and deregulate saw gains, while those exposed to tariffs, such as the Mexican peso, suffered. The euro faced its biggest one-day drop since 2020, and German government bond yields saw their largest one-day drop since January.

Analysts’ Forecasts and Market Strategies

Positive Outcomes for Certain Sectors

Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore, predicted higher rates and stronger growth benefiting Asia-Pacific bank shares. Bank stocks rose 4.4% in Tokyo and outperformed the market in Australia. Ken Peng, Head of Asia Investment Strategy at Citi Wealth in Hong Kong, highlighted potential tax cuts and deregulation as positives for the financial, energy, and tech sectors.

Bitcoin’s Surge

Bitcoin’s rise to a record high was driven by expectations of a softer stance on cryptocurrency regulation under Trump.

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Market Volatility and Future Outlook

Tariff-Exposed Sectors

Tariff-exposed sectors were less fortunate, with the Mexican peso sinking further. The euro and German bond yields also reacted sharply, anticipating economic slowdowns.

Asian Exporters’ Shares

Exporters’ shares in Hong Kong slid, pulling the Hang Seng index down by 2.7%. Investors braced for increased market volatility under Trump, with a particular focus on tariffs and broader trade conflicts.

Defensive Positioning

Rong Ren Goh, Portfolio Manager at Eastspring Investments in Singapore, noted that markets were focusing on tariffs as an immediate lever but warned of broader trade conflicts. He advised foreign investors to adopt defensive positions towards China-focused risks.

Tesla and Trump Media Shares

Shares in Tesla rallied sharply in Frankfurt, and Trump Media and Technology saw a 10% surge in extended trade.

Conclusion

The projection of a Trump victory has led to significant fluctuations in global currencies and markets, particularly in Asia. Investors are adjusting their positions in anticipation of policy changes and potential market volatility. As the situation unfolds, market participants will continue to monitor developments closely and adjust their strategies accordingly.

FAQs

1. Why did Asian currencies tumble following Trump’s projected win?

Asian currencies fell due to market expectations of Trump’s inflationary policies, which could lead to higher prices, bond yields, and a stronger dollar, undermining the currencies of US trading partners.

2. Which Asian currencies were most affected?

The Singapore dollar and Thailand’s baht experienced the most significant drops, with the Chinese yuan, South Korean won, Malaysian ringgit, and Indonesian rupiah also facing declines.

3. How did investors react to Trump’s projected victory?

Investors bought dollars, bitcoin, and stocks, while selling bonds. US stock futures hit record highs, Treasury yields jumped, and bitcoin reached $75,000.

4. What are the expected policy changes under Trump?

Trump is expected to raise tariffs, cut taxes, and deregulate, impacting global trade and economic policies.

5. How are regional central banks responding to the market volatility?

Central banks in Malaysia and Indonesia are monitoring the situation closely, ready to intervene and stabilize their currencies if necessary.