US Dollar Still Sinking, What Are Upside Factors? USD/INR Eying Indian GDP

US DOLLAR, SINGAPORE DOLLAR, INDONESIAN RUPIAH, MALAYSIAN RINGGIT, PHILIPPINE PESO – TALKING POINTS

  • US Dollar extended weakness against most ASEAN currencies
  • Emerging markets brushing off US woes which remain key risk
  • ASEAN data: Singapore GDP and CPI, Indian Q3 GDP Friday

US DOLLAR ASEAN WEEKLY RECAP

The haven-linked US Dollar aimed broadly lower against ASEAN currencies such as the Malaysian Ringgit and Singapore Dollar this past week. Capital seemed to continue flowing into developing economies, with the MSCI Emerging Markets Index (EEM) registering a 1.51% 5-day gain. This is compared to weakness in US equities, with the exception of the tech-heavy Nasdaq Composite as the Dow Jones and S&P 500 declined.

A couple of notable exceptions were the Indonesian Rupiah and Philippine Peso, which were little changed – see chart below. This is likely due to the Indonesian and Philippine Central Banks unexpectedly cutting benchmark lending rates. Both of them cited concerns about near-term inflation prospects. Bank of Indonesia also reiterated its commitment to stabilizing IDR, it sees the Rupiah as fundamentally undervalued.

LAST WEEK’S US DOLLAR PERFORMANCE

US Dollar Still Sinking, What Are Upside Factors? USD/INR Eying Indian GDP

*ASEAN-Based US Dollar Index averages USD/SGDUSD/IDR, USD/MYR and USD/PHP

EXTERNAL EVENT RISK – COVID CASES, TREASURY-FED SPAT, CONSUMER CONFIDENCE

ASEAN currencies can be quite sensitive to capital flows, and it is worth noting the divergence between the EEM and Wall Street as of late. Coronavirus cases are surging in the world’s largest economy, with hospitalization rates hitting record levels. While cases in parts of the APAC region are rising, such as in Japan and South Korea, it is relatively measured compared to the North American region for the time being.

So regional risk may be keeping equities downbeat in the US, but that could still risk reverberating outwards as the latter may impose increasingly stricter measures to cope with a third wave of the disease. This is as the Federal Reserve is complying with a request from the Treasury to redirect unused funds from several emergency lending programs established by the CARES Act.

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