Early this month, Citibank warned from an upcoming APAC rumble arguing that economic data is no longer as positive for EM Asia Pacific (APAC) and this is negative risk that will likely be a trigger for selling EUR/USD and AUD/JPY in Q4. Today, Citi reiterates this view noticing that with more of weak September data out of Asia, there are now more evidence to solidify this view. Here is how Citi's Richarad Cochinos puts it:
Data in Asia continues to weaken – and despite having no official US data, this still gives an indication of US import demand. Overnight, September China trade numbers disappointed to the downside (driven by a collapse in exports). Total trade balance fell to $15.2bn for the month of September; down from $28.5bn in August ($26.2bn was expected). Exports fell -0.3% yoy, versus +5.5% expected. Imports increased 7.4% yoy, versus 7.0% previously and expected.
This follows after South Korea’s surprisingly disappointing September trade numbers on Sept 30th. Between September and now, Taiwan and India have reported softer trade – so we can definitively say there is a weakening trend across the region.
As we highlighted in our original note (see Getting ready to APAC rumble) weaker data out of SE Asia is negative risk, and we expect this will be a trigger for selling EUR/USD and AUD/JPY in Q4.
Chart 6 below is the APAC Citi economic surprise series, and returns to EUR/USD & AUD/JPY. – From a flow perspective, the USD is one of the most oversold currencies in the G10 currently (on account of the budget negotiations) while AUD is generally overbought.
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