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ASEAN Weekly Outlook – G20 Summit, US Wars in War with China, ASEAN Currencies, US Dollar
- USD / IDR and USD / PHP held up well despite US dollar gains last week, crude oil also fell
- The G20 leaders summit could lead to disappointment on the trade front, at the risk of a decline in stocks
- The US dollar could win on paradise auctions against SGD, PHP. Fed comments could still stimulate it
CONTEXT: A brief history of trade wars, from 1900 to today
Despite general gains in the US Dollars last week, most currencies in ASEAN countries either resisted or advanced against the greenback. Particular outperformances were the Indonesian rupiah and Philippine Peso. While waiting Singapore Dollar had a little worse while the Malaysian bell was mostly little changed.
USD / IDR felt downward pressure despite the local government's cancellation of the last debt auctions for this year, after an improvement in revenues. In the old days, IDR was supported by larger bond auctions than expected helping to reduce the money supply and strengthen the currency. However, cancellations can strengthen the IDR if the offer of bonds is limited and if capital inflows from foreign ownership of local debts support the currency.
As anticipated, weakness in crude oil price was accompanied by gains in the Philippine Peso. Merchandise is a key Philippine import and lower prices can act as a deflationary force in a country where the CPI is above the central bank's price target. USD / SGD first cleared the lowest local GDP ratio in two years.
So far this week, the markets were full of mood considering The G20's optimism meetings and the reduction of fears about the Italian budget. However, as Tuesday's session began, the US president Donald Trump renewed fears of a trade war between the United States and China and cast a shadow over relations with Mexico. This says a lot about the most important event risk for the ASEAN region and local currencies.
It is the G-20 Leaders Summit, and he comes for a week with a prominent lack of risk from ASEAN 's economic event. On Friday and throughout the weekend, national leaders will discuss trade in Buenos Aires and investors / speculators will be eager to see what the relationship between the world's largest economies could be. Trade wars and the tightening of the Fed's monetary policy have weighed on emerging markets this year.
Sadly, judging by Mr. Trump's comments, it seems increasingly likely that China's import duty rate will increase by 25%. If the meeting ends with increased tensions between the United States and China, global benchmark stock indexes could be threatened. If the US Dollars win over safe haven offerings we could see a weakness in currencies such as SGD and PHP.
Apart from that, keep an eye on the latest series of Chinese manufacturing PMI The data. The Chinese economy has slowed to its slowest pace of growth in the past ten years. If this disappointment persisted in the national data, the spelling weakness in the Asia / Pacific region was deteriorating, the mood of the market could deteriorate.
Outside the region, watch the Fed's comments. We will receive speeches from the President Jerome Powell, Vice President Richard Clarida and various district presidents. The recent rise in the US dollar is accompanied by an increase in bets on Fed rate hikes in December. But, according to the Fed's futures, these are not yet fully taken into account. Maybe the comments could support them, stimulating the USD. This week's FOMC minutes could also do the same for the greenback.
Read our Technical Perspectives of ASEAN to have what moves USD / MYR, USD / PHP, USD / IDR and USD / SGD could also do the next!
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— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
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