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US Dollar May Fall as 2021 GDP Outlook Remains Intact: ASEAN Forecast

US Dollar May Fall as 2021 GDP Outlook Remains Intact: ASEAN Forecast

Daniel Dubrovsky, Contributing Senior Strategist
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US Dollar, Singapore Dollar, Indonesian Rupiah, Philippine Peso, Malaysian Ringgit – Talking Points

  • US Dollar outlook versus ASEAN FX eyes rising virus cases
  • Indonesian Rupiah weakness was curbed by the central bank
  • 2021 US growth expectations have not been materially altered
  • Asia-Pacific data: Bank of Malaysia, Singapore General Election

US Dollar ASEAN Weekly Recap

The haven-oriented US Dollar experienced a rather neutral session this past week against ASEAN currencies – see chart below. It then sold off over the past 24 hours. During this time frame, global equities – such as the MSCI Emerging Markets Index (EEM) – accelerated higher. This is as China’s state-run Securities Journal cheerlead local stock markets, sending the mainland-based CSI 300 rallying in excess of 5 percent.

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A notable ASEAN standout was the Indonesian Rupiah, which weakened 2.31% last week. That was the worst performance in almost 4 months. USD/IDR rose ahead of yesterday’s local debt monetization hearing as concerns over the Bank of Indonesia’s (BI) role in coordinating with the government’s fiscal response unnerved traders. In fact, IDR selling pressure forced the BI to intervene – as expected.

The risks of the BI funding about $40 billion of government liability – which is the biggest debt monetization program among Emerging Market nations – include rising inflation expectations, concerns over central bank independence and credit rating downgrades. The latter has thus far been avoided after soothing commentary from S&P and Moody’s – two major ratings agencies.

On Monday, the Bank of Indonesia bought $27 billion in government debt at the benchmark 7-day reverse repo rate. This was instead of earlier plans for near-zero rates. Meanwhile, the Philippine Peso strengthened as traders continued to price out local rate cut bets. Philippine Central Bank Governor Benjamin Diokno also stressed that the country “must reopen the economy” as monetary policy remains data driven.

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Last Week’s US Dollar Performance

Last Week's US Dollar Performance

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

External Event Risk – US GDP Bets, Coronavirus Cases and Initial Jobless Claims

As I have been stressing, the broader trajectory for the US Dollar against the Singapore Dollar, Indonesian Rupiah, Philippine Peso and Malaysian Ringgit from a fundamental standpoint remains dependent on risk trends. Rising coronavirus cases in the world's largest economy - the US - are likely to be the key driver ahead. This has now lead to certain states and counties either reversing or pausing lockdown-easing efforts.

Texas Governor Greg Abbott recently called for a halt to business reopenings as US confirmed virus cases continue increasing above weekly averages. Interestingly, this has not had a material impact on 2021 GDP estimates as the 2020 outlook remains dismal – see next chart below. The S&P 500 and EEM have been closely rising alongside rosy growth expectations, consequentially hurting the US Dollar.

It may be that investors don’t see recent measures taken to stem further outbreaks as severe enough to offset the economic outlook. Keep in mind that death rates have not followed recent gains in cases. A sharp rise in the former could risk unsettling financial markets. For the time being, attention turns to this week’s US jobless claims as a key driver for sentiment and the USD.

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Risk Trends Versus US GDP Expectations

ASEAN Event Risk – Bank of Malaysia, Singapore General Election

Turning the focus to ASEAN-specific event risk, later today is the Bank of Malaysia (BNM) rate decision. The BNM is expected to lower the overnight policy rate to 1.75% from 2.00% as it continues to support the economy amid the coronavirus. As such, a surprise hold can catch investors off-guard and boost the Malaysian Ringgit. Bringing the rate down to the expected level would also be the lowest point since at least 2004.

On Friday, the Singapore Dollar will be closely watching the local general election. The ruling People’s Action Party (PAP) looks likely to remain in power as it defends its management of Covid-19. New cases in the island city-state continue to clock in below weekly averages. A win for PAP would mean a 15th consecutive term since Singapore’s independence. Confirmation of the status quo will likely keep SGD volatility at bay,

Local GDP data may also be released this week, though the latest it could cross the wires is July 14. Philippine trade data and Indian industrial production will be released for PHP and INR to watch respectively. These will offer further insight into local economic recovery progress. For those looking for technical analysis, check out my latest USD/SGD, USD/IDR, USD/PHP and USD/MYR outlook.

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 -0.57. 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

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

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

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.