Chinese PMI rebound fails to support Asian FX
China’s flash PMI (HSBC) surprised positively in August, rebounding by 2.5ppt to 50.1, a four-month high. The improvement was broad based – new orders jumped, purchase activities accelerated and prices staged a visible rebound. Our Chinese economists believe the extensive pro-growth measures introduced since late July have successfully bolstered confidence of manufacturers and investors. We believe that Q3 GDP growth will likely better the 7.5% of Q2. Asian currencies were subject to news of both stronger Chinese data and reaffirmed Fed tapering overnight. It was the latter that dominated FX markets and signals that the regime shift at the Fed is driving the exit from EM markets. The rapid weakening of EM currencies remains a barrier to further USD gains vs the G10 especially as markets are already long USDs according to BNPP Positioning Analysis.
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BNP Paribas