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US Dollar May Rise on Election Risk: USD/SGD, USD/IDR, USD/MYR, USD/PHP

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

  • US Dollar slightly rose versus ASEAN FX as global equities sank
  • Presidential election may induce volatility, boosting the Greenback
  • ASEAN event risk: Bank of Malaysia, Indonesian GDP and more
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US Dollar ASEAN Weekly Recap

The anti-risk US Dollar gained cautiously against some of its ASEAN counterparts this past week. Rising volatility plunged Wall Street into its worst 5 days in over 7 months. Risk aversion reverberated outward, also resulting in the worst week for the MSCI Emerging Markets Index (EEM) since March. Albeit, losses in the latter were not as severe as those in US equities.

A proxy of emerging market capital flows, as measured by Bloomberg, declined 2 percent last week. This was the most in a month and more measured than losses in equities. The Singapore Dollar and Philippine Peso were some of the worst-performing ASEAN currencies. The Indonesian Rupiah fared better, although local markets were closed into the end of last week. So USD/IDR may rise as the new session begins.

Last Week’s US Dollar Performance

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

External Event Risk – US Presidential Election, Where to for Stimulus? Don’t Forget the Fed

All eyes turn to the November 3rd US Presidential Election. That is because investors are awaiting how its outcome could determine the path forward for another fiscal package. The Senate was dismissed last Monday for a recess until perhaps November 9th, eroding chances of more stimulus before the election. It is also likely that the results won’t be fully known until much later than usual, opening the door to interim uncertainty.

Check out DailyFX’s content around this likely volatility-inducing event here.

This plus what has been rising coronavirus cases globally, especially in parts of Europe, have likely contributed to some jitters from investors as of late. If volatility picks up pace in the coming days, traders may unwind relatively risky positions as the focus shifts to preserving capital. This could amply capital outflow from emerging and ASEAN markets, pushing USD/SGD, USD/IDR, USD/MYR and USD/PHP higher.

But there is an event next week that could perhaps soothe investors, the FOMC monetary policy announcement. Policymakers have repeatedly stressed the need for additional fiscal support, which has been lacking in terms of expediency. At the end of last week, the Fed lowered the minimum loan size in its Main Street Lending Program by 60% from US$250k to 100k.

This has opened the door to emergency funding for smaller businesses and perhaps a sign of its eagerness to step in to support the economic outlook. While no changes are anticipated in benchmark lending rates or the size of asset purchases, the Fed could offer supportive language ahead of December’s meeting. A softer-than-expected non-farm payrolls report on Friday would undermine the need for more stimulus.

ASEAN, South Asia Event Risk – Bank of Malaysia, Indonesian GDP, Singapore Retail Sales

The ASEAN docket also has a couple of key items to watch for. One of the more prominent ones is Tuesday’s Bank of Malaysia (BNM) monetary policy announcement. The BNM is expected to leave its benchmark lending rate unchanged at 1.75% after what has been 125 bps of easing this year. That would be a second meeting in a row of unchanged measures and may keep the focus for USD/MYR on external factors.

USD/IDR may see some noise around Thursday’s third-quarter Indonesian GDP report. Growth is anticipated to recover 5.62% q/q from -4.19% prior. However, economists anticipated a -3.5% decline y/y from -5.32% prior. Other ASEAN-related event risk include Indonesian CPI, Philippine trade and CPI data, and Singapore retail sales. For other data, check out the DailyFX economic calendar.

On October 30th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index fell to -0.71 from -0.90 from last week. 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 MSCI Emerging Markets Index – Daily Chart

Chart Created Using TradingView

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

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

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