Asian Currencies Steady as China GDP Beats Forecasts and US Trade Tensions Ease
Most Asian currencies traded little changed on Monday, as investors reacted to reassuring comments from U.S. officials who played down the likelihood of a trade war with China. Positive economic data from Beijing also helped support regional sentiment.
The Japanese yen underperformed, weakening slightly as markets priced in higher odds that Liberal Democratic Party leader Sanae Takaichi will become Japan’s next prime minister.
Dollar Steadies After Last Week’s Weakness
Regional currencies gained modestly last week as the U.S. dollar slipped, driven by growing expectations that the Federal Reserve could cut interest rates later in October. However, the dollar regained some footing on Monday, with investors focusing on U.S.-China trade negotiations and the ongoing U.S. government shutdown.
Both the dollar index and dollar futures inched higher in Asian trading hours.
Chinese Yuan Supported by Stronger-Than-Expected GDP
The Chinese yuan showed mild strength after third-quarter GDP data slightly exceeded forecasts. GDP grew 4.8% year-on-year, beating estimates of 4.7% but slower than 5.2% in Q2, marking China’s weakest growth since Q3 2024.
Despite the slowdown, China’s year-to-date GDP remains above Beijing’s 5% annual target. Analysts at ANZ Bank said growth is still likely to meet or slightly exceed that goal by the end of 2025. Strong exports contributed most to the GDP print, while weak private investment and soft consumer spending continued to weigh on the economy.
Data for September also showed industrial production and retail sales rising faster than expected. However, fixed asset investment, a key measure of business confidence, declined for the first time since the 2020 COVID-19 pandemic, underlining lingering weakness in domestic demand.
Economists at Capital Economics warned that China’s increasing reliance on exports was unsustainable and that further stimulus from Beijing may be needed to sustain growth.
Trade Tensions Ease as Trump Softens Stance
China’s exports still face risks from a potential U.S. trade war, after President Donald Trump threatened 100% tariffs in response to Beijing’s rare earth export restrictions. However, Trump’s more conciliatory remarks last week, signaling that high-level trade talks remained on schedule, helped calm investor nerves and lift Asian market sentiment.
The Australian dollar (AUD/USD)—a common barometer of risk appetite in Asia—rose 0.1%, while the South Korean won (USD/KRW), Taiwan dollar (USD/TWD), and Indian rupee (USD/INR) all gained about 0.1% in early trade.
The Indian rupee also found support from apparent central bank intervention, though sentiment towards India remained cautious. Trump stated in a weekend interview that high U.S. tariffs on Indian goods, reaching up to 50%, would stay in place until New Delhi halts Russian oil imports.
Japanese Yen Weakens Ahead of Takaichi’s Appointment
The Japanese yen lagged behind other Asian peers, with USD/JPY up 0.1% on Monday. The currency fell as confidence grew in Sanae Takaichi’s likely appointment as Japan’s next prime minister.
The Liberal Democratic Party (LDP) was seen over the weekend securing enough parliamentary support to form a coalition government, reviving expectations of Takaichi’s leadership.
Takaichi is viewed as a fiscal dove, favoring increased government spending and accommodative monetary policy. Markets expect her administration to resist further rate hikes from the Bank of Japan, which meets next week to decide on interest rates.
Summary
Asian currencies started the week steady, supported by stronger China GDP data and easing U.S.-China trade tensions. While the yen weakened on political shifts in Japan, broader regional sentiment remained cautiously optimistic as traders awaited upcoming Fed and BoJ decisions.
