USD : Rising

(Mon, 28 Sept 2020). US Dollar gained against ASEAN currencies as capital fled emerging markets. Will US fiscal stimulus hopes knock the Greenback down? Brexit talks eyed. ASEAN, South Asia Data: BSP, RBI, China manufacturing PMI, ASEAN PMI.

US DOLLAR ASEAN WEEKLY RECAP

The anti-risk US Dollar outperformed its ASEAN counterparts, gaining against the Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit and Philippine Peso last week. This is as global market mood continued to sour. The S&P 500, a frequent bellwether for gauging such dynamics, declined for a fourth consecutive week for the first time in over a year. A notable standout was the Philippine Peso which held up its ground. This is as the Philippine Central Bank placed a cap on credit card charges at 24% beginning November 3rd.

S&P 500 VERSUS EMERGING MARKET CAPITAL FLOWS

A proxy of emerging market capital flows show them at their lowest since July – see chart below. This follows brief divergence with the S&P 500 earlier in September during a period of resilience that likely kept ASEAN currencies afloat against the USD.

Now it seems what started aggressively in the United States is spilling outward which could offer more support to the Greenback ahead. My ASEAN-based US Dollar index is now increasingly correlating with the MSCI Emerging Markets Index – see chart at the end of the article.

EXTERNAL EVENT RISK – FISCAL STIMULUS, NFPS, BREXIT, RISING EU CORONAVIRUS CASES

Having said that, investors often look to the US to gauge the health of global growth. A lack of expediency in further fiscal stimulus from there might be contributing to the selloff in equities. All eyes turn to the House of Representatives where the chamber may vote on a Democrat-proposed $2.4 trillion package this week. This could offer a relief rally, but doubts over its passage in the Senate and White House could reverse that.

Brexit talks and rising coronavirus cases in Europe are also a consideration for general market mood. The EU and UK resume negotiations this week and the risk of a no-deal Brexit is another shroud of uncertainty for the global economy. The focus will shift to the latest US non-farm payrolls report on Friday. Rosy data could weaken the Greenback. But, a lack of fiscal progress risks ebbing its impact. Markets are after all forward looking.

ASEAN, SOUTH ASIA EVENT RISK – BSP, RBI, CHINA MANUFACTURING PMI, ASEAN PMI

Focusing on ASEAN and South Asia event risk, on Thursday brings central bank rate decisions from The Philippines (BSP) and India (RBI) respectively. These two are not anticipated to change benchmark lending rates following persistent easing since earlier this year. With that in mind, the Philippine Peso and Indian Rupee will rather be focusing on their forward guidance instead.

Still, USD/PHP and USD/INR will likely remain sensitive to risk appetite. Data that may impact this front could come from China. The world’s second-largest economy will release the latest official manufacturing PMI prints. Data from there continues to outperform relative to economists’ expectations, opening the door for another rosy outcome. This could help offset recent weakness in equities. We will also receive PMIs from Indonesia, The Philippines and India. Check out our economic calendar for further insight.

On September 25th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and my Wall Street Index was -0.46 versus 0.02 from one week ago. Values closer to -1 indicate an increasingly inverse relationship, though it is important to recognize that correlation does not imply causation. Meanwhile, the 20-day correlation between the USD and the MSCI Emerging Markets Index increased to -0.88 from -0.46

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