ASEAN Weekly Outlook – Trade Wars, Donald Trump, Xi Jinping, USD/IDR, Fed
- Market mood improved towards the end of last week, boosting stocks, SGD and PHP
- Rising expectations of a fourth Fed rate hike in 2018 could boost the US Dollar next
- USD/IDR is still in an uptrend since February, but upside moment is fading quickly
We released our 3Q forecasts for the US Dollar and equities in the DailyFX Trading Guides page
It was a rather mixed week for some ASEAN currencies when comparing their performance to the US Dollar. Turkish contagion fears first helped lift the greenback during the earlier portion of last week, adding pressure to the Malaysian Ringgit and Indonesian Rupiah. Then, not only did some of those worries dissipate, but an improvement in market mood on Friday helped turn things around.
Reports crossed the wires that talks between the US and China are outlining a path to diffuse their trade deadlock. These are aimed at summits between President Donald Trump and Xi Jinping in November. As a reminder, next week the former country is expected to enact the remaining 25% tariffs on $16b in Chinese goods while the latter is poised to retaliate with an equal amount.
All of a sudden, prospects that the world’s largest economy could continue piling on additional tariffs on China (as much as $400b) were somewhat reduced. Gains from haven bids that the US Dollar thrived on from earlier this week were perhaps unwound, causing weakness in USD. This allowed USD/SGD and USD/PHP to pare some of their climbs, resulting in them being close to little changed for the week.
The Singapore Dollar thus ended up brushing off a softer second quarter GDP report, but the Malaysian Ringgit continued weakening after the weakest pace of economic expansion since Q2 2016. As expected, USD/IDR failed to fall amidst a hawkish Bank of Indonesia monetary policy announcement. The central bank unexpectedly rose rates by 25bps and stepped up intervention to stabilize the currency again.
Next week offers a rather quiet local economic data docket. Singapore CPI is expected to remain unchanged in July while Malaysian inflation edges cautiously higher to 0.9% y/y in July from 0.8% in June. The US calendar is also rather sparse with notable event risk the FOMC meeting minutes and the Fed’s annual Jackson Hole Central Bank Symposium.
Both of these events could continue reiterating the central bank’s hawkish outlook on rates, allowing room for bets of a fourth rate hike this year to continue growing. Overnight index swaps are at the moment giving that a 62.0% probability. If Fed rate hikes continue building, this could reignite the US Dollar after it experienced some weakness last week.
While the improvement in risk trends last week could bode well for some ASEAN currencies ahead, do keep an eye out for stray headlines that may change mood at a moment’s notice. Brexit negotiations are still ongoing and the threat of a “no deal” that leads to a hard exit could sour the markets. On Tuesday, EU Brexit Negotiator Michel Barnier and UK Brexit Secretary Dominic Raab will hold talks in Brussels.
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USD/IDR Technical Analysis – Bulls Be Warned
After pushing above the 78.6% Fibonacci extension at 14,581, USD/IDR struggled making further progress higher in its uptrend since February. This could perhaps be due to fading upside momentum. Not only do we have negative RSI divergence, but looking at the consecutive candle count below shows that the bursts in recent climbs have been coming in at smaller and smaller streaks.
This does warrant caution as these developments could precede a reversal in USD/IDR. In that case, a push under support would expose the 61.8% extension at 14,424 which is also closely aligned with a near-term rising line. On the other hand, more gains would place the 100% Fib at 14,782 as the next potential target. This area also matched with the September 2015 high.
Chart created in TradingView
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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter