USD/Asia uptrend resumes after temporary pullback

EM Asia FX will face the brunt of slowing Chinese growth and a weaker CNY. China growth concerns, weak risk sentiment, approaching Fed policy normalization and increasingly dovish regional central banks are likely to keep the USD/Asia uptrend intact. 

"Korea and Taiwan are particularly vulnerable given their general openness to trade and their trade exposure to China. Long 6m USD/CNH forwards is recommended, and also USD/TWD and USD/KRW NDFs. The surprise move by Taiwan's central bank CBC to cut its policy rate has increased the risk that the USD/TWD trades above the year-end target of 34.50", says Barclays. 

In terms of data, China's official PMI will be the main focus. The September NBS PMI is projected to slip further to 49.4 on the expected weakening of production and new orders, in line with the poor outcomes in the Caixin 'flash' PMI released last week. 

"Central bank meetings in Korea and Singapore in mid-October are event risks for KRW and SGD, where the BoK is expected to cut rate by 25bp, although the MAS is likely to keep the SGD NEER band unchanged", states Barclays.

Regional activity data are also likely to reflect the drag from the slowdown in China and broader EM. Thailand's August exports and manufacturing production are likely to show contraction on a y/y basis of -2.3% and -8.0%, respectively. 

"Similarly, Korea's September exports and August IP reports are expected to be weak at -12% y/y and -1.6% y/y, respectively. Amid sluggish growth, inflation likely stayed subdued, CPI outcomes in Korea and Thailand have likely remained stable at low levels, while Indonesia's CPI could ease slightly to 7.0% y/y", added Barclays.