Watch for US CPI and China key data for August

FX views: Most Asian currencies weakened against dollar last week on net foreign outflows in local stock markets, with the THB underperforming its regional peers, followed by KRW and CNY. The yuan wakened to 7.346, due to that market sentiment towards China’s markets remained weak, as the country’s benchmark CSI 300 Index fell and Northbound Stock Connect recorded net selloffs last week. As the US CPI for August and China August key macro data are set to due this week, US dollar likely is to be one of the key factors driving the Asian currency market, along with sentiment changes due to market’s re-assessment of Chinese economic development.

Week in review: Both service sectors in China and India expanded at a slower pace this August. Caixin China services PMI fell to 51.8 and India services PMI edged lower to 60.1. Amid persistent weakness in external demand, exports for China and Taiwan continued to contract this August, Philippines’s exports fell 1.2%yoy in August after rising 0.8%yoy in the prior month. Reacceleration of headline consumer price inflation was shown in Taiwan, South Korea, Philippines and Thailand last month.

Central bank monitor: Bank Negara Malaysia kept its overnight policy rate (OPR) at 3% on 9th September. This week, PBOC will announce its 1-year MLF. While the weakness in China’s recovery suggests further rate cuts, the already large negative yield spread over the US limits the room for aggressive easing.

Week ahead: Asian calendar features key macroeconomic indicators for China, trade data for India and Indonesia, monetary data for China, inflation for China and India, as well as rate decision from PBOC.

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CHINA’S STOCK MARKET LED LOSSES AMONG ITS REGIONAL PEERS LAST WEEK

Sources: Bloomberg, MUFG GMR