Dollar Soars as SGD, MYR and IDR Drop on China Woes, Can it Sustain?

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

  • US Dollar soars against Ringgit, Rupiah, Singapore Dollar on coronavirus fears
  • China first-quarter growth concerns may revive woes around global growth bets
  • Philippine Peso eyeing expected rate cut, USD/SGD to focus on China trade news

US Dollar, Coronavirus, Singapore Dollar, Malaysian Ringgit, Indonesian Rupiah – ASEAN FX Weekly Recap

It was a tumultuous week for ASEAN currencies such as the Singapore Dollar, Indonesian Rupiah and Malaysian Ringgit against the haven-linked US Dollar. As expected, concerns about the impact of the coronavirus on regional and global growth sent the USD/SGD, USD/IDR and USD/MYR to the upside. My ASEAN-based US Dollar index experienced its best 5-day climb since May.

Meanwhile the Philippine Peso fared relatively better off with USD/PHP prices still largely in consolidation mode since late October. Newswires have attributed this to the Philippines’ relatively lower tourism exposure to China, of which Thailand has a larger share. USD/THB rose to its highest since June 2019 last week, wrapping up its most-aggressive 5-day advance since the Summer of 2018.

For timely updates on ASEAN currencies, make sure to follow me on Twitter here @ddubrovskyFX

USD/SGD, USD/MYR, USD/IDR, USD/PHP Forecast Looks to China Coronavirus Fears

The sensitivity of ASEAN currencies to sentiment makes them vulnerable to ongoing risk aversion. On the chart below, a proxy of emerging market capital flows can be seen falling alongside the EEM. The latter is the MSCI Emerging Markets Index, which tracks the underlying performance in developing economies such as China and India.

Last week, the U.S. Centers for Disease Control and Prevention (CDC) called the Wuhan virus an “unprecedented public health threat”. Countries across the world have stepped up efforts to help quarantine the outbreak by reducing travel. A few international companies have also partially shut down business in China for the time being such as Starbucks.

This has raised concerns about the health of the world’s second-largest economy and the impact the coronavirus can have on first-quarter GDP. Expansion is near a 30-year low and much of investors’ optimism around the US-China “phase-one” trade deal has been unwound. The latter is reportedly seeking flexibility on U.S. trade targets which if is denied by the White House, may further dampen market mood.

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Dollar Soars as SGD, MYR and IDR Drop on China Woes, Can it Sustain?

SGD, MYR, IDR, PHP Outlook – Indonesian CPI, Philippine Central Bank, China Trade Data

Focusing on regional economic event risk, the Indonesian Rupiah is already off to a weak start. On Monday, USD/IDR rose as local CPI data showed headline Indonesian inflation running at 2.68% y/y in January. That was unexpectedly the softest pace since March. On Wednesday, the Rupiah will also be closely watching local GDP data. Fourth-quarter growth is expected to clock in at 5.00% y/y, little changed from the previous one.

A top-tier ASEAN economic event risk that USD/PHP is awaiting will be the Philippine Central Bank (BSP) rate decision on Thursday. The markets are expecting a 25-bp reduction in the overnight borrowing rate from 4.00% to 3.75%, especially after Governor Benjamin Diokno hinted at 50-bp of easing in 2020. The proximity of the BSP may dampen the impact of Philippine CPI data due the day before.

USD/SGD may look past upcoming Markit Singapore PMI data for January which will show the impact of Wuhan virus concerns on local output surveys. The Singapore Dollar’s attention will likely be on sentiment which is seeing a cautious improvement early into the week. Chinese trade numbers for January will reveal how external flows are being impacted by the Wuhan virus.

Focusing on the US Dollar, Friday’s non-farm payrolls report could undermine dovish Fed expectations. Economic outcomes relative to forecasts have been tending to surprise to the upside as of late. More of the same flow may boost the Greenback alongside local government bond yields. Though if it also improves market mood, gains against ASEAN FX could be rather mute.

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— 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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