US Dollar May Weaken Further: USD/SGD, USD/IDR, USD/MYR, USD/PHP

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

  • US Dollar weakened versus ASEAN FX on fiscal stimulus bets
  • Declines may persist if policymakers inch closer to a package
  • ASEAN event risk: Bank of Indonesia, MAS, Singapore GDP

US Dollar ASEAN Weekly Recap

The haven-oriented US Dollar weakened last week against ASEAN currencies such as the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit and Philippine Peso. Rising US fiscal stimulus bets, after back and forth with President Donald Trump, improved general risk appetite. The MSCI Emerging Markets Index (EEM) soared 4.18% last week, closing at its highest since the middle of January. Capital flowed into developing economies, boosting some of their currencies given their sensitivity to external forces.

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Last Week’s US Dollar Performance

US Dollar May Weaken Further: 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 – US Fiscal Stimulus, Election Polling, Key Economic Data

After the main components of the first US fiscal stimulus package, the CARES Act, expired at the end of July, investors have been eagerly awaiting further measures from policymakers. Even the Federal Reserve has stressed the importance of fiscal stimulus. Dallas Fed President Robert Kaplan expressed his hesitation to add further quantitative easing at this point.

With that in mind, President Donald Trump has said that he wants more aid than either party is offering. The Democratic-proposed bill is about $2.2 trillion. Lately, Joe Biden’s gaining lead in the polls ahead of November’s election has likely been contributing to the jubilant performance in equities. The markets are essentially pricing in a larger package. Polls that continue facing Biden may continue boosting stocks.

Meanwhile, rosy economic data surprises are coming in few and far between. The Citi Economic Surprise Index tracking the US is at its lowest since the middle of June. Markets are forward looking, so while the US Dollar may gain on lackluster retail sales and University of Michigan Consumer Confidence data, hopes of stimulus could keep USD under pressure against its ASEAN counterparts.

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ASEAN, South Asia Event Risk – Bank of Indonesia, Monetary Authority of Singapore, GDP

The ASEAN economic docket is fairly busy this week. Top-tier event risk include the Bank of Indonesia and Monetary Authority of Singapore policy announcements for IDR and SGD respectively. Indonesia’s central bank is expected to hold its benchmark lending rate unchanged at 4.00% Tuesday. What USD/IDR may focus on is commentary about the exchange rate. The central bank has been intervening to stabilize its currency.

The MAS will hold its policy announcement on Wednesday. Economists’ are not anticipating for a shift in its approach for managing the exchange rate. Unlike most central banks, the MAS gives up control of lending rates for exchange rate management. Policy is anticipated to remain unchanged. What could be more interesting to watch is Singapore’s third-quarter GDP report due on the same day.

The nation is heavily reliant on the external sector. After shrinking 42.9% q/q, growth is expected to rise 33.3%. That would be a sign of a global economy that is recovery from Covid-19, especially if it overshoots estimates. This could add further downside pressure to USD/SGD. Other important items this week include Indian, Indonesian and Chinese trade data. Check out the DailyFX economic calendar for more!

On October 5th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index rose to -0.92 from -0.90 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 May Weaken Further: 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

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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