US Dollar ASEAN Weekly Recap

The US Dollar had a mixed week against ASEAN currencies like the Malaysian Ringgit, Singapore dollar , Philippine peso and Indonesian Rupiah. As anticipated, the broader picture for my ASEAN-based US Dollar index continued to specialise in developments in sentiment. thereto end, a rough start to the week finished on an upbeat tone as US-China trade war worries appeared to cool for the nonce . Stocks on Wall Street gained.

The focus for USD/IDR and USD/PHP on market mood was underscored after Indonesian and Philippine GDP data crossed the wires respectively. within the half-moon , Indonesian growth slowed to 2.97% y/y versus 4.00% expected. That was the worst outcome since 2001. Philippine GDP within the same period contracted -0.2%, the foremost since a minimum of 1999.

That IDR and PHP were still ready to still finish on a cautiously stronger note against the US Dollar despite dismal data likely paints an identical trajectory for the road ahead. That is, ASEAN FX may generally pay closer attention to external developments rather than local. The exception last week was the Malaysian Ringgit. USD/MYR rose because the Bank of Malaysia cuts rates by 50-basis points to 2.00%, hinting at more measures.

Last Week’s US Dollar Performance

US Dollar Fundamental Forecast: USD/SGD, USD/IDR, USD/MYR, USD/PHP

ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/MYR and USD/PHP

External Event Risk – Fed Balance Sheet, Coronavirus Cases and Gradual Easing in Lockdowns

On the chart below is an ASEAN-based US Dollar index – averaging USD/SGD, USD/IDR, USD/PHP and USD/MYR – overlaid with the MSCI Emerging Markets Index (EEM). The 20-day rolling coefficient of correlation stands at -0.7. Values on the brink of -1 indicate an inverse dynamic and the other way around . It should be noted that correlation doesn’t imply causation.

Having said that, there are some key fundamental developments to stay an eye fixed out. the primary is that the slowdown in coronavirus cases globally which is pushing more countries to slowly ease lockdown restrictions. this might be why equities seem to be looking past dismal economic data and rather that specialize in the longer term . Last week, the worlds’ largest economy lost over 20.5 million non-farm payrolls as unemployment soared to 14.7%.

In the background though, the aggressive pace in monetary stimulus to support growth seems to be fading. The Federal Reserve’s record has swelled to over US$6.7 trillion last week. While this is often impressive, that represents a +0.98% change from the prior period. On Friday, the Fed also slowed its daily Treasury purchases to US$7 billion from $8b prior.

What this suggests is that sentiment – absent a big uptake in liquidity – may have increasingly stronger conviction to sustain bullish momentum. The slope of appreciation in my Wall Street index has been fading. Commentary from Fed officials – like James Bullard and Patrick Harker ahead – may spook investors during a similar way the central bank’s Vice Chair did when he warned about the pace of a recovery in jobs.

ASEAN Event Risk – Malaysian GDP, Chinese Industrial Production and Retail Sales

It should be noted that Malaysian GDP is predicted to shrink -0.6% y/y within the half-moon next week. But as mentioned earlier, USD/MYR may specialise in external developments. A rosy session in equities ahead could offset weakness within the Ringgit as a results of the economic data. What may boost sentiment is that if Chinese industrial production and retail sales on Friday beats expectations.

ASEAN-Based USD Index Versus MSCI Emerging Markets Index – Daily Chart

US Dollar Fundamental Forecast: USD/SGD, USD/IDR, USD/MYR, USD/PHP

Chart Created Using TradingView

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