Sunday, 28 November 2021 03:16 GMT

US Dollar Outlook: USD/SGD, USD/THB Eye China GDP as USD/IDR Faces Energy Crunch


(MENAFN- DailyFX) US Dollar, Singapore Dollar, Thai Baht, Indonesian Rupiah, Philippine Peso, ASEAN, Fundamental Analysis – Talking Points

  • US Dollar sinks against ASEAN currencies as sentiment improves
  • The focus shifts to Chinese GDP data and the Bank of Indonesia
  • USD /THB & USD/PHP may benefit from Covid restrictions easing


US Dollar ASEAN Weekly Recap

The US Dollar saw its worst week on average against ASEAN currencies - including the Singapore Dollar, Thai Baht, Philippine Peso and Indonesian Rupiah – in about 2 months. The Thai Baht and Indonesian Rupiah were some of the best-performing developing Asia-Pacific currencies. The Singapore Dollar also strengthened, aided by unexpected policy tightening from the Monetary Authority of Singapore (MAS).

As is the usual case in pairs like USD/SHD, USD/THB, USD/PHP and USD/IDR, sentiment was the key driver. On the 4-hour chart below, MSCI ASEAN Indices can be seen shooting higher in recent days. This likely speaks to rising capital inflows into Emerging Markets, which tends to work as a relative detriment to the haven-oriented US Dollar.

MSCI ASEAN Indices – 4-Hour Chart

Chart Created Using TradingView

External ASEAN Event Risk – US Manufacturing PMI, Treasury Yields

Given the sensitivity of ASEAN currencies to external event risk and shocks, it is important to look at what may influence them outside of the Asia-Pacific region. That docket is relatively light this week. US economic data is fairly lacking prominent risk. Markit manufacturing PMI will cross the wires towards the end of the week. More attention may be given to the earnings season, with companies like Netflix and Tesla on tap.

Investors should keep a close eye on Treasury yields. Longer-term rates cautiously pulled back this past week. The front-end 2-year rate continued climbing though. The latter likely reflects Fed tapering expectations that are driving up yields. A resumption higher in US government debt rates can work against risk appetite, placing ASEAN currencies at risk.

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

ASEAN, South Asia Economic Data – China GDP, Bank of Indonesia, Covid Restrictions Easing

The local Asia-Pacific docket seems more impactful this coming week. All eyes are on Chinese third-quarter GDP data. Growth in the world's second-largest economy is expected to slow to 5.0% y/y from 7.9% prior. This data covers the emerging Evergrande ordeal as the nation comes to terms with weakness in the real estate sector. A softer-than-expected print risks deteriorating global risk appetite.

Meanwhile, the Bank of Indonesia is expected to leave the 7-day reverse repo rate unchanged at 3.5%. The central bank said that tightening is unlikely until the latter half of next year. With that in mind, USD/IDR may continue focusing on other fundamental drivers, such as a global energy crunch that has been hitting China especially hard.

Indonesia's export sector is tilted towards commodities and energy rather than manufacturing. As such, the nation has been benefiting from the recent strength in commodity prices, sending USD/IDR to its lowest since late February. This leaves IDR in a fairly rosy position. Meanwhile, Thailand and the Philippines are gradually easing Covid lockdown restrictions, leaving the Thai Baht and Philippine Peso potential benefactors from cheery local market sentiment.

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On October 15th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index changed to -0.74 from -0.88 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 EEM Index – Daily Chart

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 DailyFX.com

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

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