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US Dollar Could Rise Versus ASEAN FX as Coronavirus Overshadows Data

US Dollar Could Rise Versus ASEAN FX as Coronavirus Overshadows Data

Daniel Dubrovsky, Strategist

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

  • US Dollar may be readying to rise against ASEAN FX
  • Reversal in US lockdown easing risks slowing recovery
  • FOMC minutes may overshadow non-farm payrolls data
  • Asia Pacific data: China & ASEAN manufacturing PMIs

US Dollar ASEAN Weekly Recap

The anti-risk US Dollar cautiously underperformed this past week against its ASEAN counterparts. The Singapore Dollar, Philippine Peso and Indonesian Rupiah gained slightly. This is as the Malaysian Ringgit underperformed. In other parts of Southeast Asia, the Indian Rupee also enjoyed strength against USD. This is despite Wall Street ending on a sour note on Friday.

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Early into last week, sentiment broadly improved which placed the US Dollar in a position to recover lost ground as risk trends remained the key focus for developing-nation currencies. Rising coronavirus cases in the United States, which hit daily records, resulted in states like Florida and California pausing certain elements of lockdown easing. This threatened swift economic recovery prospects.

In the ASEAN region, the Philippine Central Bank (BSP) unexpectedly cut the overnight reverse repurchase rate to 2.25% from 2.75%. The BSP also left the door open to cut lenders’ reserve requirement ratios. In Malaysia, the Department of Statistics forecasted that the economy is set to remain in a contraction as the manufacturing sector struggles to recover. The Malaysian Ringgit fell as global funds sold local equities.

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Last Week’s US Dollar Performance

US Dollar Could Rise Versus ASEAN FX as Coronavirus Overshadows Data

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

External Event Risk – US Lockdown Reversal? Non-Farm Payrolls, FOMC Minutes

Prospects of a reversal in lockdown easing progress could overshadow upbeat economic data from the world’s largest economy. Markets are indeed forward looking. This is in a week where the US will release consumer confidence, ISM manufacturing PMI and the highly-anticipated non-farm payrolls report. Data out of the US continues to largely outperform economists’ expectations, opening the door to further upbeat news.

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That may weaken the US Dollar against ASEAN FX if sentiment improves as a result. But, a reintroduction in lockdowns could deter consumption and sour confidence. Risk aversion could also be ignited by the minutes of the June FOMC meeting. As a reminder, Chair Jerome Powell sent the Dow Jones, S&P 500 and Nasdaq Composite tumbling after offering a sobering assessment of the economic outlook.

Fundamentally, rising coronavirus cases in the US could also be leading to financial markets pricing in a worse-than-expected recovery compared to Emerging Markets. On the chart below is a ratio of the MSCI Emerging Markets Index (EEM) and the S&P 500. It hit its highest since early April. Even though both assets have been weakening as of late, the latter has been doing so at a more aggressive pace.

More of the same could reduce the potential for selling pressure in SGD, MYR, IDR and PHP if risk aversion picks up pace in the week ahead and boosts the US Dollar. But this is uncertain due to what is likely to be the consequential knock-on impact of a deeper drawdown in growth from the US. Do also keep an eye on EU-UK Brexit talks. June 30 is the deadline to agree on a transition extension.

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Emerging Markets Versus the United States

US Dollar Could Rise Versus ASEAN FX as Coronavirus Overshadows Data

Chart Created Using TradingView

ASEAN Event Risk – China and ASEAN PMI

Turning my attention to regional affairs, China will be releasing official manufacturing and non-manufacturing PMI data for June. These will reveal deeper insights into the economic recovery progress from the world’s second-largest economy. ASEAN nations have a key trading relationship with China. To learn more about these dynamics, check out my collaborative piece with Analyst Dimitri Zabelin.

Beyond China, Markit manufacturing PMI will also be crossing the wires out of Indonesia, Malaysia, India and the Philippines this week. Singapore retail sales are due at the end of the week as US markets go offline for the Independence Day holiday. For technical analysis in USD/SGD, USD/MYR, USD/PHP and USD/IDR, check out my latest update here.

At the end of last week, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index (EEM) stood at -0.34. Values closer to -1 indicate an increasingly inverse relationship, though it is important to recognize that correlation does not imply causation.

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

US Dollar Could Rise Versus ASEAN FX as Coronavirus Overshadows Data

Chart Created Using TradingView

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

-- 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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