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USD at Risk to SGD, IDR, MYR and PHP. US-China Phase One in Focus

USD at Risk to SGD, IDR, MYR and PHP. US-China Phase One in Focus

Daniel Dubrovsky, Senior Strategist

Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso – Talking Points

  • SGD, IDR, MYR, PHP and INR rose on US-Iran de-escalation
  • ASEAN FX are rallying ahead of US-China phase one signing
  • More highs in the MSCI Emerging Markets Index offer support

US Dollar and ASEAN FX Weekly Recap

The US Dollar experienced a mixed performance last week, diverging between trends against the major currencies and with emerging market FX. Specifically, it unanimously lost ground to the ASEAN group such as the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit and Philippine Peso. Its underperformance also extended into the Indian Rupee as sentiment remained the key driver for some of these exotics.

The key fundamental development that helped drive record highs on Wall Street was a de-escalation in US-Iran geopolitical risk. That was temporarily threatening to upend some of the aggressive gains seen in not just the S&P 500, but also in the MSCI Emerging Markets Index (EEM). As I noted in last week’s ASEAN fundamental outlook, the focus was on risk trends and will likely continue doing so ahead.

It also did not hurt for USD/PHP that in the Philippines, stronger-than-expected inflation likely cooled near-term easing bets. In December, headline CPI clocked in at 2.5% y/y versus 2.0% expected. Benjamin Diokno, Governor of the Philippine Central Bank (BSP), hinted that their policy path this year would be data-dependent. USD/IDR extended its selloff after the Bank of Indonesia welcomed further strength in the Rupiah.

For timely updates on ASEAN currencies, make sure to follow me on Twitter here @ddubrovskyFX

US Dollar and ASEAN FX Weekly Recap

US-China Phase-One Trade Deal Signing Eyed

Early this week, USD/SGD, USD/MYR, USD/IDR, USD/PHP and USD/INR have extended their declines as optimism has been building ahead of the US-China “phase one” trade deal signing. That is expected to take place on Wednesday. China is anticipated to purchase more agricultural goods from the United States as it works to uphold intellectual property rights.

The latter is expected to scrap plans of hiking new tariffs and slash existing ones against the former by 15% on about $120b worth of goods. Ahead of this, the Treasury removed China’s label as a currency manipulator after 5 months of status. That offered another near-term boost to equities with Asia Pacific stocks trading in the green on Tuesday. More gains may be had on the official signature of the accord in the near-term.

The road ahead is less clear as the US and China move on to discuss more sticky issues in a presidential election year for the latter. President Donald Trump has said that he would work to begin the next phase of the multi-step agreement “right away. However, he also said that it could wait until after the 2020 election to finish it. This event could down the road send stocks on the defensive and extend into ASEAN FX.

The 20-day rolling correlation coefficient between my ASEAN-based US Dollar Index and the EEM is at -0.74. This highlights the importance of risk trends for driving FX such as PHP and MYR. A value towards -1 would imply an increasingly stronger inverse relationship. Looking at the chart below, you can see the recent divergence between ASEAN-USD with DXY.

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ASEAN FX vs Emerging Market Index

ASEAN FX vs Emerging Market Index

ASEAN-Based USD Index Created Using TradingView

ASEAN Eye China GDP and Indonesia Trade

Focusing on regional event risk, all eyes will be turned to the fourth quarter Chinese GDP report. Data has been tending to cautiously surprise on the upside out of the world’s second-largest economy for over a month. The most recent example was December trade figures. In addition to GDP, China will also release figures on retail sales and industrial production.

More of the same in growth measurements would not only be supportive locally, but also on a global scale as fears ebb about a worldwide economic slowdown. That may continue the medium-term uptrend in the Singapore Dollar and Malaysian Ringgit against the US Dollar. The Indonesian Rupiah will also be awaiting local trade data on Wednesday. USD/INR is at risk to stagflation following December’s surge in Indian CPI.

Check out my Singapore Dollar currency profile to learn about how the MAS conducts monetary policy!

US CPI, Retail Sales, Industrial Production, University of Michigan Sentiment

Looking at economic data from the world’s largest economy, items such as inflation, retail sales, industrial production and sentiment are all on the docket. Unlike in China, outcomes relative to economists’ expectations are falling mostly in-line with consensus. This could translate into USD volatility and impact monetary policy expectations, though the Fed has made its stance on leaving rates unchanged this year clear.

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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.