ASEAN Weekly Outlook – PSEi Index, Philippine Peso, Bank of Indonesia, USD/IDR, Global Growth
- Even though USD gained last week, PHP rose with PSEi as local rates may be put on hold
- USD/IDR faces forward guidance from the Bank of Indonesia which may leave rates steady
- Emerging markets, ASEAN FX at risk after China slowed & Fed maintained hawkish tone
We recently released our 4Q forecasts for equities in the DailyFX Trading Guides page
Despite a recovery in the US Dollar towards the latter half of last week, most ASEAN bloc currencies were little changed against it. Gains in the US Dollar were partially as a result of hawkish FOMC meeting minutes which reignited Fed rate hike bets after the global stock market selloff earlier in October cooled them. One notable exception though was the Philippine Peso, which gained about 0.75% against USD.
This may have been for a couple of reasons. First, we saw the Philippine Stock Exchange Index rise for four consecutive days in a row. This is its longest winning streak since July. Second, local shares may have rallied on prospects that the Philippine central bank could pause raising interest rates according to Monetary Board Member Felipe Medalla. He added that this will depend on the next batch of CPI data.
In terms of local event risk, the week ahead contains the Bank of Indonesia monetary policy announcement. The markets are widely anticipating for the 7-day reverse repo rate to remain unchanged at 5.75%. This places the impact of the event on the Indonesian Rupiah based on the forward guidance delivered from Governor Perry Warjiyo.
Looking at the chart below, in addition to spending foreign exchange reserves, the central bank has hiked rates by a grand total of 150 basis points in rapid successions since May to help stem a selloff of in their currency. Weakness in the sentiment-linked IDR and emerging markets has largely been as a result of tightening from the Fed, trade wars and slowing global growth.
Lately though, USD/IDR has been in consolidation mode while negative RSI divergence hints that upside momentum is ebbing. What is more impressive is that despite recent aggressive selloffs in the S&P 500, Nikkei 225 and the MSCI Emerging Markets Index, the Indonesia Rupiah has stood its ground. Perhaps the lack in stress to IDR will result in a rate hold this week, leaving it safe for now.
But stock markets are still arguably vulnerable for a couple of reasons, and this may come back to haunt certain ASEAN currencies. For one thing, last week’s FOMC minutes continue to support the Fed’s efforts to raise interest rates in spite of what occurs in equities. This may be made more apparent by the first estimate of US third quarter GDP which seems poised to keep diverging from weakness in global growth.
We got a taste of that last week when Chinese third quarter GDP clocked in at its slowest in almost a decade. Keep in mind that countries like Singapore, Malaysia, Indonesia and the Philippines have key trading relationships with the world’s second largest economy. Thus, if China continues to weaken this could have consequential knock-on effects for the aforementioned nations as well as being a catalyst for a stock selloff.
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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