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ASEAN Weekly Outlook – Emerging Markets, Trump Tariffs, Ringgit, Rupiah, USD/SGD

  • Emerging markets entered bear market as Trump tariffs soured investors, S&P 500 fell
  • ASEAN FX remains vulnerable to risk aversion, US Dollar gains on Fed rate hike bets
  • USD/SGD faces a breakout soon as support and resistance clash, July 2017 highs eyed

We released our 3Q forecasts for the US Dollar and equities in the DailyFX Trading Guides page

Emerging markets entered bear territory this past week with the MSCI EM ETF falling over 20 percent since its peak back in January. Developing economies face a challenge of tightening global credit conditions and pressures to the world trade front. Last month, the Turkish Lira and Argentina Peso depreciated sharply. East Asian currencies were also vulnerable; the US Dollar had another solid week against them:

Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso versus US Dollar

The Malaysian Ringgit underperformed the most after it depreciated beyond a long term descending resistance line from November 2016, opening the door to more losses against the US Dollar. Meanwhile USD/PHP faced the highest Philippine inflation since 2009. It surpassed even the Bangko Sentral ng Pilipinas (BSP) worst case scenario estimate, causing them to reassess their outlook.

The road ahead for East Asian currencies in the ASEAN region still looks bumpy for next week. The main source of event risk will likely stem from external factors. In particular, the ever present vulnerability of sentiment to rising trade war concerns. This was amplified last week as the S&P 500 tumbled when Donald Trump threatened China with additional tariffs and turned his attention towards Japan.

Meanwhile the US Dollar could continue appreciating, especially after last week’s streak of better-than-expected local economic data ending with the jobs report. US wage growth accelerated to 2.9% y/y, the highest since May 2009. Local bond yields rose, signaling rising Fed rate hike bets. But the markets are still not quite fully pricing in a December increase which could still transpire and boost the greenback.

The sentiment-linked Indonesian Rupiah and Malaysian Ringgit could also be impacted by market swings on the Swedish election result. There, the Eurosceptic Swedish Democrats parties could rise in popularity which would add pressure to the European Union and risk sending stocks lowers. This vote is also ahead of the ECB rate decision where we will also get updated economic projections.

In the event emerging markets continue declining and thus putting more pressure on ASEAN FX such as the Philippine Peso, we may see central banks continue stepping up efforts to stabilize their currencies. For the Philippines, this has been the case since 2016 when foreign exchange reserves started contracting. Interestingly, last week’s data showed that they added more to their supplies:

USD/PHP versus Philippine International Reserves

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USD/SGD Technical Analysis – Breakout Due

The shooting star bearish reversal pattern on the Singapore Dollar daily chart was cancelled out after Friday’s upside performance. USD/SGD continues being supported by a near-term rising trend line from late August. Meanwhile, immediate resistance is at 1.38185 which is the August 15th and September 5th highs.

The pair is running out of room and will likely experience a breakout in the week ahead. If emerging markets continue being vulnerable, USD/SGD may rise and target the July and June highs at 1.38633 and 1.39112 respectively. Meanwhile a descent through support exposes the rising trend line from June.

USD/SGD Prices Daily Chart

Chart created in TradingView

FX Trading Resources

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter