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US Dollar Bottoming? Smaller Fiscal Stimulus, Earnings, Covid Threaten ASEAN FX

US Dollar Bottoming? Smaller Fiscal Stimulus, Earnings, Covid Threaten ASEAN FX

Daniel Dubrovsky, Contributing Senior Strategist


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US Dollar, Singapore Dollar, New Taiwan Dollar, Indian Rupee, ASEAN, Fundamental Analysis – Talking Points

  • US Dollar mostly held ground vs ASEAN FX, Emerging Market equities fell
  • Smaller US fiscal stimulus, earnings season and Covid cases may favor USD
  • APAC, ASEAN data: China GDP, Bank of Indonesia, Taiwan export orders
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US Dollar ASEAN Weekly Recap

The haven-linked US Dollar experienced a mixed week against ASEAN currencies, rallying against the Singapore Dollar while holding steady against the New Taiwan Dollar, Philippine Peso and Indonesian Rupiah. As expected, elevated longer-dated Treasury yields helped cushion what has been persistent weakness in the Greenback. The MSCI Emerging Markets Index fell 0.66% over the past 5 trading sessions.

In South Asia, the Indian Rupee was a notable standout, gaining 0.24% against the US Dollar. Despite a softer-than-expected inflation print, longer-dated Indian government bond yields climbed. The Reserve Bank of India drained about $27.4 billion from the financial system as the 14-day reverse repo cutoff yield was set at 3.55%. This is higher than the RBI’s 3.35% rate, cooling dovish expectations.

Last Week’s US Dollar Performance

Last Week's US Dollar Performance

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

External Event Risk – Fiscal Stimulus, Earnings Season, US Markit Manufacturing PMI

External event risk can often have major implications for the US Dollar against ASEAN and Emerging Market currencies. As such, all eyes are on the path for fiscal stimulus from the world’s largest economy, which has arguably been a key driver for longer-dated Treasury yields. Despite Joe Biden unveiling a USD 1.9 trillion relief package, equities on Wall Street mostly traded lower this past week as sentiment deteriorated.

Investors may be pricing in a watered-down version of the package, which includes a $1,400 check for certain individuals as well as calls for raising the minimum wage to $15 per hour. With only a simple majority in the Senate once Biden takes office as the 46th president on Wednesday, Democrats may have to resort to using budget reconciliation. This would limit measures to revenue and spending.

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Elevated Covid cases and deaths, following disappointing initial jobless claims and consumer sentiment data, underpin the case for more stimulus as the nation struggles to contain the coronavirus. Central banks from developed nations, such as the ECB, BoC and BoJ, may highlight concerns about the economic outlook during their monetary policy announcements this week given recent lockdowns in parts of the world.

Following disappointing earnings data from Wells Fargo, it may foreshadow soft results from Morgan Stanley and Bank of America this week. Tech companies Netflix and Intel are also on tap. Overall, the anti-risk US Dollar could continue bottoming out in the near-term amid these developments against ASEAN and Emerging Market currencies.

Check out my latest ASEAN technical report for USD/SGD, USD/TWD, USD/THB and USD/IDR levels!

ASEAN, South Asia Event Risk – China GDP, Bank of Indonesia, Taiwan Export Orders

Focusing on the ASEAN and APAC economic docket, the week begins with fourth-quarter Chinese GDP. Growth is expected to increase by 6.2% y/y from 4.9% prior. As the world’s second-largest economy, China’s data can offer a proxy of global growth. Nations like Singapore, the Philippines and Taiwan also have key trading relationships with China. A supportive print can imply positive economic spillovers.

On Thursday, USD/IDR is eyeing the Bank of Indonesia, which is expected to leaves benchmark lending rates unchanged at 3.75%. However, the central bank may fret about weakness in the Rupiah and continue reiterating its efforts to stabilize the currency. That may boost the Rupiah. The New Taiwan Dollar is eyeing local export orders on Wednesday, which have been surging with demand for tech products.

Check out the DailyFX Economic Calendar for ASEAN and global data updates!

On January 15th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index increased to -0.40 from -0.74 one week ago. 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

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/TWD 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.