Indonesian Rupiah, Malaysian Ringgit, Singapore Dollar, Philippine Peso – Talking Points
- US Dollar rose as coronavirus dents S&P 500 and Emerging Markets
- USD/IDR, USD/SGD, USD/PHP, USD/MYR may generally climb next
- Chinese PMI may show virus fears, Fed rate decision could sink stocks
US Dollar, Coronavirus, Singapore Dollar, Indonesian Rupiah – ASEAN FX Weekly Recap
The haven-linked US Dollar aimed higher this past week as market sentiment noticeably deteriorated. The USD gained against ASEAN FX such as the Singapore Dollar and Malaysian Ringgit. Fears of the deadly coronavirus, which is slowly spreading out of central China to other parts of the world, helped send the S&P 500 lower. The index experienced its worst performance over the course of 5 trading days since August.
The MSCI Emerging Markets Index (EEM) fell about 3.55% last week, the worst dynamic since July. This left ASEAN currencies vulnerable. Though most of the risk aversion occurred during the Wall Street trading session on Friday when Philippine, Indonesian and Malaysian markets were already offline. One of the best-performing regional currency was the Indonesian Rupiah thanks to its associated central bank.
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SGD, MYR, IDR, PHP Outlook – Coronavirus Contagion fears, Fed and Repo Operations
The regional ASEAN economic calendar docket is relatively light in the week ahead, placing the focus for SGD, MYR, IDR and PHP on external developments. Contagion fears surrounding the coronavirus may continue damping general market mood. This is while the Lunar New Year holiday is in full swing, raising concerns about revenue prospects if participants stay indoors. Chinese markets will be offline for most of the week, reducing levels of liquidity which may exacerbate volatility.
As Chinese authorities work to help minimize an outbreak by restricting regional travel, a third case was reported in the United States on Friday as well as one in France. On January 31 Chinese manufacturing PMI will cross the wires and the impact of the virus on general output will be better known. If there is a sizeable deterioration, that may sink equities and weaken currencies such as the Singapore Dollar and Philippine Peso.
Across the Pacific Ocean, all eyes will be on the Federal Reserve. The central bank is widely expected to leave benchmark lending rates unchanged. What investors will likely be paying close attention to is how they plan on managing their repurchasing (repo) operations in the near-term. These have been causing the central bank’s balance sheet to swell, unwinding about half of their tightening efforts from late 2017 to August 2019.
The Fed announced that term operations should be lowered to $30b from $35b in February. Further plans to unwind these, perhaps leading to a reduction in its balance sheet, may likely pressure equities. On the chart below, the inverse relationship between the EEM and my ASEAN-based US Dollar index still holds negative. With that in mind, heightened volatility may fuel broad gains in USD/SGD, USD/MYR, USD/IDR and USD/PHP.
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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