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US Dollar Fundamental Outlook: USD/SGD, USD/IDR, USD/MYR, USD/PHP

US Dollar Fundamental Outlook: USD/SGD, USD/IDR, USD/MYR, USD/PHP

Daniel Dubrovsky, Strategist

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

  • US Dollar mostly little-changed against ASEAN FX, IDR weakened
  • US earnings season and coronavirus case growth may boost USD
  • ASEAN ahead: Malaysia & Singapore CPI, industrial production

US Dollar ASEAN Weekly Recap

The haven-linked US Dollar traded little changed against some of its ASEAN counterparts such as the Singapore Dollar, Malaysian Ringgit and Philippine Peso last week. This is as global equities followed a similar path. The S&P 500, a bell-weather for overall market sentiment, slightly climbed while the MSCI Emerging Markets Index (EEM) traded cautiously lower.

A notable standout was the Indonesian Rupiah, which weakened to its lowest point against the US Dollar since late May. This also follows the aftermath of the Bank of Indonesia rate decision, where policymakers took the benchmark 7-day repo rate down to its lowest on record. Furthermore, USD/IDR extended its advance following bullish technical signals, as expected.

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Last Week’s US Dollar Performance

US Dollar Fundamental Outlook: USD/SGD, USD/IDR, USD/MYR, USD/PHP

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

External Event Risk – Earnings Seasons, Microsoft, Coronavirus

The focus for ASEAN pairs such as USD/SGD, USD/MYR and USD/PHP may remain on external factors that influence market mood. With that said, all eyes are on the United States as coronavirus cases continue to clock in at record daily levels. If government officials are forced to reinstate lockdowns or pause easing efforts, that could dent future growth prospects and pour cold water on swift recovery expectations.

Earnings season is also in full swing with attention particularly turned to tech companies as they defend their relatively elevated stock valuations. This past week, Netflix overwhelmingly disappointed as the company issued weaker-than-expected guidance. Its share price fell as much as 11 percent in after-hours trade. Further dismal data from Microsoft on Wednesday could compound risk aversion, boosting the US Dollar.

ASEAN Event Risk – Malaysia CPI, Singapore CPI and Industrial Production

The ASEAN economic docket is fairly light ahead. Malaysia and Singapore will release their latest reports on inflation. Disinflationary pressures will likely keep central bankers on the dovish side. Singapore will also be releasing industrial production data on Friday for a period where non-oil exports beat economists’ expectations. More upbeat data could help support global growth recovery bets, pressuring USD/SGD lower.

Despite gains in the MSCI Emerging Markets Index since early June, my ASEAN-Based US Dollar Index has traded sideways – see chart below. Perhaps what may be preventing ASEAN FX from seeing further gains against USD are falling regional government bond yields. While the Fed has already reduced rates to near-zero levels, central banks from the ASEAN region continue cutting, sapping the appeal of their currencies as volatility cools.

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 -0.66. Values closer to -1 indicate an increasingly inverse relationship, though it is important to recognize that correlation does not imply causation.

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

US Dollar Fundamental Outlook: USD/SGD, USD/IDR, USD/MYR, USD/PHP

Chart Created Using TradingView

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

*ASEAN 10-Year Govt. Bond Yield Mean averages those from Singapore, the Philippines and Malaysia

-- 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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