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US Dollar Catches a Break, Will it Last? Fed, ASEAN Central Banks Due Ahead

US Dollar Catches a Break, Will it Last? Fed, ASEAN Central Banks Due Ahead

Daniel Dubrovsky, Strategist

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

  • US Dollar catches a break after losses vs ASEAN FX, but not by that much
  • External risks: US lockdowns, fiscal aid & omnibus bill, Brexit, EU budget
  • APAC, ASEAN data: China dump, Indonesian and Philippine central bank
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US Dollar ASEAN Weekly Recap

The anti-risk US Dollar netted a fairly mixed week against ASEAN currencies such as the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit and Philippine Peso. This marks a pause to what has been general weakness in USD against developing-market currencies since late March. The MSCI Emerging Markets Index (EEM) was little changed, suggesting capital paused flowing into these economies on average.

Still, there were a couple of notable standouts last week – see chart below. The first was the Malaysian Ringgit, which was the second-best performing Asian currency versus the US Dollar (second to the Thai Baht). This is as the FTSE Bursa Malaysia KLCI index soared to a 6th consecutive week of gains as palm oil prices rose on diminishing stockpiles. The latter is a key export. The Indonesian Rupiah also performed relatively well.

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Last Week’s US Dollar Performance

US Dollar Catches a Break, Will it Last? Fed, ASEAN Central Banks Due Ahead

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

External Event Risk – FDA Moderna Approval, US Stimulus, Fed, Retail Sales

ASEAN and emerging nation currencies can be quite sensitive to capital flows and external factors can often influence regional market trends. On this front, fiscal stimulus woes from the US despite hopes of a Covid vaccine rollout may have deteriorated market sentiment. In fact, equities on Wall Street traded lower this past week, even leaving certain tech shares vulnerable.

Republicans and Democrats remain gridlocked over employer lawsuit protections and state aid respectively. November’s disappointing non-farm payrolls report underscored the need for more aid as local lockdowns and rising coronavirus cases leave the economy vulnerable. Hope remains that policymakers can come to terms with the US$900 billion bipartisan package, opening the door to boosting risk appetite.

That may further hinder the US Dollar. Still, a lack of a deal risks inducing market volatility and can reverse some of the gains SGD, IDR, MYR and PHP have enjoyed most of this year. Meanwhile, the FDA will examine Moderna’s vaccine for authorization after giving the green light to Pfizer’s one, opening the door to more rollouts this year. This may also keep market mood intact.

All eyes turn to the Fed on Wednesday for the last monetary policy announcement of 2020. Rates are expected to remain unchanged, with attention focused on the central bank’s asset purchases and updated economic projections. The risks likely remain skewed towards the dovish side, especially giving ongoing uncertainty with fiscal support. Retail sales and PMI data are on tap, check out the DailyFX Economic Calendar for more.

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ASEAN, South Asia Event Risk – Chinese Data, Bank of Indonesia, Philippine Central Bank

The ASEAN economic docket contains a few key events to keep an eye out for. On Tuesday, China will release the latest industrial production and retail sales data. The nation’s strong recovery has been paramount to its neighbors due to key trading relationships. As such, an unexpectedly soft outcome risks derailing regional sentiment.

Meanwhile, the Bank of Indonesia and Philippine Central Bank are due on Thursday for USD/IDR and USD/PHP respectively. Both are expected to leave benchmark lending rates unchanged, another source of strength in their currencies. While they may hint at further action if needed, a hesitation to commit may keep IDR and PHP on a solid footing. Bank of Indonesia may also reiterate that it sees its currency as undervalued, threatening to intervene if it weakens.

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On December 11th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index rose slightly to -0.85 from -0.92 from last week. 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 Catches a Break, Will it Last? Fed, ASEAN Central Banks Due Ahead

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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