The US dollar started 2022 ahead of ASEAN counterparts. Indonesia was a notable anomaly, with rising palm oil and coal prices likely offsetting a negative tone in the developing Asia-Pacific area. The US Dollar may be ready for another round of significant losses against ASEAN currencies. Last week's FOMC minutes revealed a notable hawkish tilt among officials. Fed Funds Futures predicts three rate hikes this year. Also, the central bank may start tightening in 2022.
Then there's the impact of a rising dollar on emerging-market debt servicing. Rising borrowing rates and a stronger dollar make repayments more difficult.
Notably, many ASEAN countries have large foreign exchange reserves, which may help offset local currency devaluation. Most economic news this week comes from the Philippines, Indonesia, and Thailand. On Friday, China's trade data is expected. Many ASEAN countries rely on China for trade. Slowing Chinese export demand may weaken the economy this year, pushing the US dollar higher. Exports are predicted to rise 20% year on year in December, down from 22% in November. Keeping this in mind, emerging markets will eagerly await the US CPI report. According to figures released on Wednesday, headline inflation is expected to hit 7% in December, up from 6.8% in November.
That's the fastest in 40 years. With more hawkish Fed monetary policy bets, USD/SGD, THB, IDR, and PHP are likely to rise this week. This risks capital outflows from emerging markets. In general, when the Fed rises rates, safer Treasury yields tend to follow. Investing in the stock market becomes more costly when the "risk-free" rate climbs. Trades in emerging markets may be withdrawn or unwind as a result. On January 7th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index rose to -0.65 from -0.04. Closer to 1 values indicate a stronger inverse relationship, although correlation does not imply causality.
Then there's the impact of a rising dollar on emerging-market debt servicing. Rising borrowing rates and a stronger dollar make repayments more difficult.
Notably, many ASEAN countries have large foreign exchange reserves, which may help offset local currency devaluation. Most economic news this week comes from the Philippines, Indonesia, and Thailand. On Friday, China's trade data is expected. Many ASEAN countries rely on China for trade. Slowing Chinese export demand may weaken the economy this year, pushing the US dollar higher. Exports are predicted to rise 20% year on year in December, down from 22% in November. Keeping this in mind, emerging markets will eagerly await the US CPI report. According to figures released on Wednesday, headline inflation is expected to hit 7% in December, up from 6.8% in November.
That's the fastest in 40 years. With more hawkish Fed monetary policy bets, USD/SGD, THB, IDR, and PHP are likely to rise this week. This risks capital outflows from emerging markets. In general, when the Fed rises rates, safer Treasury yields tend to follow. Investing in the stock market becomes more costly when the "risk-free" rate climbs. Trades in emerging markets may be withdrawn or unwind as a result. On January 7th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets Index rose to -0.65 from -0.04. Closer to 1 values indicate a stronger inverse relationship, although correlation does not imply causality.
