Asia FX muted with U.S.-China summit in focus, dollar ticks higher

Asian currencies experienced minimal movement in thin trading on Monday, as investors turned their attention towards a high-level U.S.-China summit in Washington scheduled for later in the week. Japanese markets were closed on Monday and will remain closed for most of the week, while Chinese and South Korean markets will be on break later in the week.

Broader regional markets demonstrated little reaction to falling oil prices, which continued to slump from last week after the U.S. President, Donald Trump, expressed openness to meeting Iranian counterpart, Masoud Pezeshkian, during a United Nations summit in New York this week. Despite the high tensions in the Middle East, markets were largely unfazed.

The Japanese yen remained relatively stable on Monday, with the USD/JPY pair hovering near 157 yen. This stability was attributed to the Bank of Japan's interest rate hike on Friday, which was expected at 25 basis points. However, the Bank of Japan's commentary was less hawkish than anticipated, with no indications of further rate hikes in the coming months.

The dollar index and dollar index futures both rose by 0.1% on Monday, extending their gains from the previous week. The dollar benefited from the Federal Reserve's decision to hike interest rates and commit to its 2% annual inflation target, a move indicative of further monetary tightening.

The focus this week is on Chinese President Xi Jinping's meeting with U.S. President Donald Trump in Washington, where they will discuss a variety of topics, with trade tariffs and artificial intelligence taking center stage. U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng initiated talks in New York on Sunday to outline the agenda for the upcoming summit.

Bessent stated that the two discussed setting up a new U.S.-China notification system for artificial intelligence to address common goals and threats. On the trade front, Trump and Xi are expected to extend their ongoing trade truce, which is set to expire in early November. The Chinese yuan's USD/CNY pair showed little movement on Monday after the People's Bank of China left benchmark lending rates largely unchanged, as expected.

The PBOC maintained its one and five-year loan prime rates at 3.0% and 3.50%, respectively, which are still at record-low levels. Although low rates have had minimal impact on the yuan, the currency reached a four-year high in September due to a series of strong midpoint fixes by the PBOC. Broadly, Asian currencies remained stable on Monday, with trading volumes expected to be limited due to numerous holidays in major markets.

The Singapore dollar's USD/SGD pair remained relatively unchanged, while the South Korean won's USD/KRW pair declined by 0.16%. The Australian dollar's AUD/USD pair was flat, and the Indian rupee's USD/INR pair fell by 0.16%.