More positive signs from China economic recovery rolls on with China August Caixin PMI manufacturing recorded its 4th strait expansion and the highest level since January 2011.

This should provide a boost to local stocks as well as global commodity markets (oil) as the reflation trade holds true.

As if the Chinese Yuan (CNH) needed another tailwind, the USDCNH dipped -100 pips after the CAIXIN release. The fundamentals remain ripe for RMB appreciation in the second half of 2020, with the People’s Bank of China (PBoC) having little reason to slow the appreciation.

The potential adverse tail risk to the worsening of US-China relations due to the upcoming US election seems to be wagging less frequently of late, which has opened the door wide open to a more pronounced CNH rally. And will likely drag G-10 FX along for the ride.

USDJPY consolidates

USDJPY continues to consolidate following the sell-off after Japanese PM Abe announced his resignation on Friday due to his health. Some calendar-related demand perhaps added some support overnight.

EURUSD price action remains constructive, but there looks to be a decent supply ahead of the resistance at 1.1985/1.2000. EURUSD topped out again around 1.1960/65 before the market took a breather yesterday, but will the shift in lower in USDCNH has triggered more broad-based weakness as Asia FX traders have taken out the previous days’ resistance.

Australian dollar outperforms US dollar

AUD continues to outperform against the US dollar, tagging 0.7400/05 overnight. The market remains buyers of dips given the current risk-on narrative, although a degree of flexibility is warranted ahead of today’s monetary policy decision from the Reserve Bank of Australia (RBA).

Following a slightly better Korean Q2 GDP print, which shrunk by less than expected, August trade data has provided a tailwind for KRW, with Korea’s trade surplus marginally beating expectations. While exports are down year-on-year and the net trade balance is better than a year ago.

The Reserve Bank of India sprung into action yesterday, with a slew of measures to cap the sell-off in bonds and hinted at allowing rupee appreciation to tackle imported inflation. The RBI said it would conduct additional special open-market operations involving the simultaneous purchase and sale of government securities for an aggregate amount of INR200 bn in two tranches of INR100 bn each (Operation Twist).

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp