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Will the US Dollar Rise on CPI? USD/IDR and USD/THB Eye Indonesia, Thailand Rate Decisions

US Dollar, Singapore Dollar, Thai Baht, Indonesian Rupiah, Philippine Peso, ASEAN, Fundamental Analysis – Talking Points

  • US Dollar lost ground to ASEAN currencies as sentiment improved
  • Strong US jobs data and wages bring rekindle 5 2022 Fed hike bets
  • Key event risk: US inflation, Bank of Indonesia, Bank of Thailand

US Dollar ASEAN Weekly Recap

The US Dollar lost ground against its ASEAN counterparts this past week, likely attributed to a recovery in Emerging Asia market sentiment. This can be seen on the 4-hour chart below where the MSCI Singapore, Indonesia, Thailand and Philippine indices climbed. The latter did not rally as much following disappointing Philippine manufacturing PMI and higher-than-anticipated CPI data. Will sentiment continue recovering placing the Singapore Dollar, Thai Baht, Indonesian Rupiah and Philippine Peso on the offensive?

MSCI ASEAN Indices 4-Hour Chart

Will the US Dollar Rise on CPI? USD/IDR and USD/THB Eye Indonesia, Thailand Rate Decisions

Chart Created Using TradingView

External Event Risk – All Eyes on US CPI

The recovery in market sentiment, thus spelling trouble for the US Dollar, likely stemmed from Fedspeak undermining the case for five rate hikes this year throughout the week. Mary Daly and Esther George, presidents of the Federal Reserve San Francisco and Kansas branches respectively, cautioned against quicker-than-expected tightening.

This was then reversed course on Friday after a strong US jobs report. The world’s largest economy unexpectedly added 467k positions versus 125k anticipated in January. This is as average hourly earnings surged 5.7% y/y against an anticipated 5.2% rise. This likely caused the markets to start pricing in a fifth rate hike once more to wrap up the week. The Nasdaq Composite gave up most gains to close out the week.

All eyes will be on US CPI data coming out on Thursday. Headline inflation is expected to clock in at a strong 7.3% y/y for January, up from 7.0% in December. This means that price growth continues to expand at 40-year highs. Another strong print risks reinforcing calls for 5 rate hikes this year, risking market volatility.

That would likely benefit the US Dollar against ASEAN currencies as a combination of interest rate hike bets and risk aversion props up the currency. Emerging Markets can be quite sensitive to tightening monetary policy from the United States. It should be noted though that certain currencies from developing markets have been resilient, perhaps due to healthy levels of foreign exchange reserves.

AESAN Event Risk – Indonesia GDP, Bank of Thailand, Bank of Indonesia

Focusing on ASEAN event risk, USD/IDR will be eyeing Indonesian fourth-quarter GDP to start off the week. The economy is expected to grow 4.5% y/y versus 3.5% in the third quarter. The central bank has been stressing that it will keep rates low until there are signs of rising inflation. A stronger-than-anticipated GDP print could perhaps increase higher CPI bets.

Further information from the Bank of Indonesia will be known on Friday during the central bank’s January interest rate decision. The benchmark 7-day reverse repo rate is likely to remain unchanged at 3.5%. Prior to this announcement, the Bank of Thailand will make its own on Tuesday for USD/THB. Lending rates are anticipated to also be left unchanged, at 0.50%. As such, USD/THB may focus more on external news.

Check out the DailyFX Economic Calendar for ASEAN and global data updates!

On February 4th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index changed to -0.27 from -0.35 one week ago. 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 EEM Index – Daily Chart

Will the US Dollar Rise on CPI? USD/IDR and USD/THB Eye Indonesia, Thailand Rate Decisions

Chart Created Using TradingView

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

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

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