While a soft DXY supported the Chinese yuan (CNY) for most of September, escalating trade tensions weighed on market sentiment, writes Hunter Chan – Economist Greater China at Standard Chartered.

"The US and China imposed additional tariffs on each other’s goods starting from 1 September. While talks between the two sides continue, the date for high-level trade talks in October was not confirmed until the last week of September. Against this backdrop, non-FDI capital outflows picked up to USD 19.7bn in September from a modest USD 11.5bn in August, according to our estimate. FX assets held by the People’s Bank of China (PBoC) saw a small decline of USD 0.1bn, indicating that overall cross-border flows remained balanced. The merchandise trade surplus widened to USD 39.6bn in September after narrowing for two months, leading to a larger Q3-2019 surplus relative to Q2. Meanwhile, we estimate that the September services trade deficit shrank to USD 22.9bn. We calculate that total net capital outflows (including net FDI inflows of USD 2.8bn) edged up by USD 7.3bn to USD 16.9bn in September -- still modest compared with June (USD 31.8bn) and July (USD 20.3bn). The latest data from the State Administration of Foreign Exchange (SAFE) shows that net FX sales picked up in September and the willingness to convert FX receipts into CNY declined. SAFE recently announced new measures to facilitate cross-border trade and investment, including simplifying administrative procedures for FX payment and receipt and removing some payment restrictions on the capital account. The measures aim to improve the business environment and attract foreign capital.