The dollar gained in early Asian trade after a two-day slide as investors across Asia stayed focused on exacerbated currency appreciations from Taiwan to Malaysia.
A gauge of the dollar rose 0.3% after speculation around potential trade deals had pushed the currency lower. The Taiwanese dollar extended its rally after surging the most since the 1980s on Monday. China’s central bank kept its daily fix for the yuan steady as the market reopened. US stock futures edged lower after the S&P 500 halted its longest rally in about 20 years. There’s no cash trading in Treasuries during the Asian day as Japan is closed for a holiday.
President Donald Trump’s aggressive trade talk has rattled markets since he took office in January, undermining the dollar’s traditional haven role in times of stress and leading investors to allocate away from US assets. Central bankers from Taiwan to Hong Kong are responding to the sharp appreciation in local currencies by intervening in the market.
Currency revaluation across Asia “could be a significant development not just in driving the dollar lower, but also in the trade negotiation process and accelerate the idea of trade deals,” Chris Weston, head of research at Pepperstone Group, wrote in a note.
The deep inversion of a popular Taiwan-dollar derivative suggests selling pressure on the US currency has plenty of room to run. The spread between the Taiwan dollar spot rate and one-year non-deliverable forwards on the Taiwan dollar-US dollar currency pair swelled to around 3,000 pips on Monday, the widest level in at least two decades.
The divergence is the latest sign of seemingly insatiable demand for Taiwan’s currency on speculation the island will reach a trade deal with the US.
Meanwhile, Hong Kong authorities spent a record amount in an attempt to defend the foreign-exchange peg. The yen and the Malaysian ringgit both dropped Tuesday after gains on Monday.
“I would be cautious about leaning in too much into this appreciation as central banks in Taiwan, Malaysia and especially Hong Kong have significant means to buy dollars if they need to,” said Leah Traub, a portfolio manager and head of the currency team at Lord Abbett & Co.
Investor hopes that Trump may start to pull back from launching new fronts on his trade war were dashed when he announced plans to impose a 100% tariff on films produced overseas sending shares of Netflix Inc. and Warner Bros. Discovery Inc. lower. While Trump suggested some trade deals may come as soon as this week, there was no indication of an imminent accord with China.
In late hours, Ford Motor Co. pulled its financial guidance and said auto tariffs will take a toll on profit. Palantir Technologies Inc.’s dropped more than 8% in late trading Monday after its results failed to live up to investors’ loftiest expectations for a company whose stock has led the S&P 500 in gains this year.
Attention will soon shift to Wednesday’s Federal Reserve decision after bond traders dialed back rate-cut bets that had steadily mounted as Trump’s trade war unleashed havoc in financial markets.
After piling into short-term Treasuries, anticipating the Fed would start easing policy soon to contain the fallout, traders reversed course. Two-year yields rose for a third consecutive session - the longest run since December - as traders bet policymakers will remain in wait-and-see mode until there’s more clarity on the impacts of tariffs.
“Uncertainty rules amid a trade war and the ever-changing landscape of tariffs, but with the hard data on consumer spending and employment still hanging in there, the Fed will remain firmly planted on the sidelines,” said Greg McBride at Bankrate.
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