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US Dollar Forecast: Gaining Ground as ASEAN Weaken, Eyes on Fed Chair Powell

US Dollar Forecast: Gaining Ground as ASEAN Weaken, Eyes on Fed Chair Powell

Daniel Dubrovsky, Strategist

US Dollar, Singapore Dollar, Thai Baht, Indonesian Rupiah, Indian Rupee, ASEAN, Fundamental Analysis – Talking Points

  • US Dollar mostly strengthened versus ASEAN currencies this past week
  • Rising longer-term Treasury yields, idling ASEAN equities key factors
  • ASEAN, Key News Ahead: Singapore CPI, Thailand trade, Fed Chair

US Dollar ASEAN Weekly Recap

Last week, the US Dollar saw some strength against ASEAN currencies. It was relatively unchanged against the Singapore Dollar, while gaining ground against the Indonesian Rupiah and Thai Baht slightly. A notable standout was the Philippine Peso, which weakened 0.85% against the Greenback. In fact, USD/PHP rose the most since March, almost one year ago. The MSCI Emerging Markets Index fell about 0.5%.

Over the past 5 trading sessions, global funds sold the most amount of Philippine equities since late January, according to Bloomberg. These capital outflows may have pressured PHP, which can be quite sensitive to them. Meanwhile, the Bank of Indonesia cut its 7-day reverse repo rate to 3.50% from 3.75% prior, as expected. While USD/IDR gained, the central bank reiterated its commitment to upholding the Rupiah.

US Dollar, MSCI Emerging Markets Index – Last Week’s Performance

US Dollar Forecast: Gaining Ground as ASEAN Weaken, Eyes on Fed Chair Powell

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

External Event Risk – Treasuries, Fed Chair Jerome Powell

The notable slowdown in ASEAN currency gains this year compared to the majority of 2020 comes amid two key market developments. The first is rising longer-term Treasury yields in the United States. This is a sign that a combination of fiscal stimulus expectations, vaccine rollouts and global growth bets are driving up local inflation expectations. The 10-year breakeven Treasury rate, a market-based gauge of CPI, is near 2018 highs.

Rising rates of return from the US can work to cushion downside potential in the Greenback. Meanwhile, ASEAN stock market benchmarks are struggling to push into new highs. In fact, they have been consolidating since the US Dollar found a bottom earlier this year – see chart below. Investors may be becoming increasingly hesitant to park capital into riskier assets as government bond yields start offering better returns.

With that in mind, all eyes are on Fed Chair Jerome Powell who will be speaking twice this week. Once at the central bank’s semi-annual monetary policy report to the Senate Banking Committee on Tuesday. The other is during testimony before the Congress House Committee on Financial Services the next day. He may be questioned about bond yields, but may also reiterate the central bank’s dovish policy stance.

ASEAN, South Asia Event Risk – Singapore CPI and Industrial Production, Thailand Trade

Focusing on the ASEAN economic calendar docket, the week ahead is fairly quiet. USD/SGD has Singapore inflation and industrial production for stoking volatility. The outward-facing economy will reveal further insight into how the global economic recovery is faring. Then on a similar note, USD/THB will be awaiting Thailand’s latest trade report for January.

There seems to be some growing divergence between certain ASEAN central banks. While the Bank of Indonesia eased policy last week, the Philippine Central Bank hinted that more may not need to be done. Governor Benjamin Diokno said that they are carefully assessing the timing of unwinding policy, adding that there is a limited impact from any further easing. This is Manila mulls an easing of movement restrictions.

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

On February 19th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and an ASEAN ETF index changed to -0.41 from -0.44 one week ago. Values closer to -1 indicate an increasingly inverse relationship, though it is important to recognize that correlation does not imply causation – see chart below.

ASEAN-Based USD Index Versus ASEAN ETF Index and Treasury Yields – Daily Chart

US Dollar Forecast: Gaining Ground as ASEAN Weaken, Eyes on Fed Chair Powell

Chart Created Using TradingView

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

-- Written by Daniel Dubrovsky, Strategist 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.