US Dollar Price Forecast: Emerging Market Currencies Face Surging Treasury Yields

US DOLLAR, ASEAN, PHILIPPINE PESO, THAI BAHT, NEW TAIWAN DOLLAR, SINGAPORE DOLLAR, FUNDAMENTAL ANALYSIS – KEY POINTS:

  • US Dollar rise vs. ASEAN Currencies despite price rally in the Emerging Market Stocks
  • ASEAN, APAC data: Indonesian & China trade, CPI and India Industrial output
  • Rising longer-dated Treasury yields cushioning US Dollar on the fiscal stimulus bet

US DOLLAR VS. ASEAN WEEKLY SUMMARY

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The haven associated US Dollar received a great break from the continued losses to kickstart 2021, gaining some ground against the ASEAN currencies like Thai Baht, Malaysian Ringgit, and the Singapore Dollar. This worked despite the broadest strength in the equities of developing nations, with the MSCI Emerging Market index rallying about 5.9%. This was the best performance overtime for the past 2 months.

Some significant standouts included the Indonesian Rupiah and New Taiwan Dollar. The latter rose as the Taiwanese benchmark stock index rallied about 5% in the past 5 days. Also, the semi-conductor heavy index largely capitalized on the gains in the tech shares as the TSM reported sales rose 13.6% year on year in December. The USD/IDR dropped as traders price in quicker economic recovery hopes as New Zealand Dollar Blow On The Climbing US Yields, Rules Threats.

Last Week’s Performance of US Dollar

US Dollar

EXTERNAL EVENT RISK –US RETAIL SALES, FISCAL STIMULUS, TREASURY YIELDS, AND SENTIMENT

With the low local lending rates, the haven USD tends to get weak if the stocks performed better than expected. After the democrat’s victory in the Georgia senate runoffs, this has over time raised the prospects of a fiscal stimulus in the world’s biggest economy. Technically, this raised the recovery and growth outlook, pushing the long-dated Treasury yields further to new levels since 2020.

Surging US rates of return are most likely benefiting from the appeal of the US Dollar, particularly as the yields from this point outperformed those from the ASEAN countries last week. Pairs such as USD/THB and USD/SGD saw a steady decline slow. As we go forward, the expectations of the stimulus might continue to push the Treasury yields high, offering the DXY index a break from further losses.

Furthermore, last week’s poor NFP report showcased the importance of extra support, as president-elect Bide stated. Also, with the release of the FOMC minutes, the central bank experiences a current outlook of the bond purchases as suitable. It’s likely that the Lose policy would remain for a while and it’s not clear how the Treasury rates will perform.

USD Index Vs MSCI Emerging Markets Index – Daily Chart

US Dollar

The risks that might provide some momentum to the US Dollar index includes surging cases of covid-19, particularly the most recent, highly transmissible strain. Lockdown threats might pose some threats for more equities, nudging the USD high. All the eyes are also on the US retail sales and Michigan University sentiment on Friday. This will continue until the rates of infection start declining.

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