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US Dollar Wilting as IDR, SGD gain. US-China Spat, Brexit Talks Eyed

US Dollar Wilting as IDR, SGD gain. US-China Spat, Brexit Talks Eyed

2020-06-01 03:00:00
Daniel Dubrovsky, Analyst
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Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso, Indian Rupee – Talking Points

  • US Dollar weakened against ASEAN currencies last week
  • Markets seemed underwhelmed by US-China developments
  • Escalation risk remains, Brexit talks and US jobs data eyed
  • ASEAN data: PMIs, net exports, unemployment, retail sales

US Dollar ASEAN Weekly Recap

The US Dollar weakened against its ASEAN counterparts last week such as the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit and Philippine Peso – see chart below. In other parts of Southeast Asia, the Indian Rupee found some strength against the haven-linked Greenback. This is as global investor sentiment continued to improve, pushing stocks on Wall Street higher and closer to reversing steep losses from earlier this year.

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As expected, ASEAN currencies remained glued to external fundamental headlines that drove risk appetite. This is likely to be the case again going forward. This past week, the markets shrugged off escalating US-China tensions over Beijing’s seemingly rising grip over Hong Kong. US President Donald Trump’s response seemed to satisfy tense traders as he refrained from undermining the US-China phase on trade deal.

Last Week’s US Dollar Performance

US Dollar Wilting as IDR, SGD gain. US-China Spat, Brexit Talks Eyed

ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/MYR and USD/PHP

External Event Risk – US-China Tensions, Brexit Talks, US Jobs Report

The resilience in traders' risk appetite despite the economic harm of the coronavirus outbreak will continue being tested in the week ahead. All eyes are on China’s response to the US sanctioning some of its officials as the latter moved to revoke Hong Kong’s preferential trade status. Further tit-for-tat exchanges risk inducing a shift away from investors pursuing returns towards preserving capital.

The reaction from Trump could come in the form of criticizing the depreciation in the Yuan since January. The White House has expressed its displeasure before – especially in the heat of the trade war - about how China would ‘manipulate’ its currency to soften the blow of higher tariffs. If more dollars can be exchanged into Yuan, then that can sometimes offset the higher cost of levies when nations exchange goods.

Brexit negotiations resume between the European Union and United Kingdom ahead. Recent talks have not been appearing to go well. EU Trade Commissioner Phil Hogan said that “we are not making much progress at the moment”. The deadline to extend the transition period is coming up at the end of this month. If it is not prolonged, then lawmakers run the risk of a 'no-deal' outcome by the end of the year if negotiations prove unfruitful.

That would be another layer of uncertainty as the global economy tries to recover from the Covid-19 outbreak. May’s US non-farm payrolls report crosses the wires Friday. If it inspires risk aversion, that may boost the US Dollar. This is likely to push USD/SGD, USD/IDR, USD/MYR and USD/PHP higher in turn. Check out my latest ASEAN technical outlook for key levels of support and resistance to watch for!

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ASEAN Event Risk – PMIs, Malaysian Trade, Philippine Unemployment, Singapore Retail Sales

As for regional ASEAN economic event risk, Markit Indonesian and Indian PMI are due on Tuesday and Wednesday respectively. These readings may come in sub 50, indicating contraction in business activity. On Thursday, Malaysian trade data will cross the wires. Exports are expected to contract -12.8% y/y in April, worse than the -4.7% outcome prior.

Philippine unemployment is due on Friday as well as Singapore retail sales. While these may inspire some near term volatility in PHP and SGD respectively, the larger focus for ASEAN FX may remain on market sentiment. On the next chart below, you can see my ASEAN-based USD index inversely tending to track the MSCI Emerging Markets Index.

ASEAN-Based USD Index Versus MSCI Emerging Markets Index – Daily Chart

US Dollar Wilting as IDR, SGD gain. US-China Spat, Brexit Talks Eyed

Chart Created Using TradingView

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

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.

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