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US Dollar ASEAN Outlook: Trade War Panic? Singapore Dollar, BSP Cut

US Dollar ASEAN Outlook: Trade War Panic? Singapore Dollar, BSP Cut

Daniel Dubrovsky, Contributing Senior Strategist
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ASEAN Fundamental Outlook

  • US Dollar soared versus emerging market currencies as US-China tensions boiled
  • An escalation in trade wars may fuel panic selloff in ASEAN FX: (PHP, IDR, SGD)
  • Philippine Peso eyeing BSP rate cut as Indonesian Rupiah awaits GDP report next

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US Dollar and ASEAN Week Recap

While the DXY Dollar index, which is heavily Euro based, ended last week little changed, it was a very different story against ASEAN and South Asian currencies as it appreciated – as anticipated. Arguably, it had less to do with the Federal Reserve interest rate cut, but rather a panic in emerging markets as US-China trade tensions boiled and inspired risk aversion across major global benchmark indexes.

On Thursday, US President Donald Trump announced that the country will proceed with imposing more tariffs on about $300b in Chinese imports at 10 percent on September 1. This effectively ended the trade truce the two nations reached at the G20 Leaders Summit in June. He also left the door open to a further increase in the tariff rate. This means that virtually all goods the US imports from China will get taxed.

At the ASEAN foreign ministers meeting in Bangkok, many countries reported “regretting” the escalation in US-China trade tensions. Sharp declines in the MSCI Emerging Market ETF were accompanied with depreciation in the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso and Indian Rupee. Better-than-expected Indonesian CPI data and Philippine stock exchange investment inflows were overshadowed.

US Dollar and ASEAN Week Recap

The Trade War Overhang for Emerging Markets

Last year, we saw a selloff in emerging markets that occurred amidst the backdrop of escalating US trade tensions with not just China, but also with the world as it embarked on steel and aluminum tariffs. Global growth remains fragile as manufacturing PMI from nations across the world hovers around contractionary territory. Last week was a step towards repeating 2018’s dynamic in this sense.

China’s UN Envoy Zhang Jun said that if the United States wants to fight on trade, they will too. After the US went ahead with threatening to impose further tariffs, China reportedly looked to Brazil for potentially buying soybean from as an alternative. An escalation in tensions between the world’s largest economies, amidst an already-fragile global growth environment, may add fuel to recent selloffs in ASEAN assets.

Philippine Central Bank to Cut Rates as Indonesia Reports GDP

This fundamental development should be kept in mind as the ASEAN region reports plenty of important economic data. This ranges from Indonesian and Philippine GDP. From the latter, we will also see the latest inflation report. Philippine CPI is anticipated to slow to 2.3% y/y in July, which would be the weakest pace of price growth since the end of 2016. USD/IDR and USD/PHP will be closely watching these.

This helps to explain anticipation that the Philippine central bank (BSP) may cut the overnight borrowing rate to 4.25% from 4.5%. Dovish forward guidance, especially amidst rising tensions between the US and China, may further weaken the already-vulnerable Philippine Peso. Meanwhile, the Singapore Dollar may continue to closely follow the Greenback.

The US economic docket thins out this week. We will commentary from Fed members such as Lael Brainard and James Bullard. This year, we have seen the central bank resort to easing to help counter the risk of growth from trade tensions. Even though last week’s cut may not have been the beginning of a “lengthy cutting cycle”, an escalation in US tariffs may support further action. This may help alleviate selling pressure in emerging market and ASEAN assets.

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--- Written by Daniel Dubrovsky, Currency Analyst for

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.