Weaker CNY and its impact on AXJ currencies

Asian currencies which have already been beaten down by lower commodity prices, capital outflows and the Fed rate hike are now facing the brunt of renewed CNY weakness. It is no surprise that the Asian currencies have started the year on a weak footing and we could see more pressure in the weeks ahead.

Accelerated depreciation of the CNY guided by lower PBoC fixes has rattled investor confidence, raising concerns of a more than expected weakness in China. South Korea's KRW, Taiwan's TWD and Singapore's SGD are currencies most exposed to CNY depreciation pressures. Indirect impact of commodity price weakness, especially in oil prices, has also weighed on Malaysia's MYR.

On the other side, we think the INR, PHP and THB are less vulnerable to CNY depreciation given the lower share of trade in their GDP. Also a limited competition with China in third markets provides some insulation to these. That said, it is an undeniable truth that it is difficult for almost all countries in the region to escape the pressure from weakening Chinese growth.