Asian currencies are now climbing higher after the Dollar index (DXY) fell below the psychological 97 mark during the Asian session, as the Federal Reserve confirmed market expectations and ditched its patient stance on US interest rates. North Asian currencies such as the South Korean Won and the Japanese Yen are gaining by about 0.5 percent, while ASEAN currencies such as the Malaysian Ringgit, Indonesian Rupiah, and the Thai Baht opened about 0.3 percent higher against the Greenback.
Asian currencies should enjoy some relief over the near-term as the prospects of a Fed rate cut are now firmly entrenched in the markets, which is weakening support for the US Dollar. With Fed chair Jerome Powell paving the way for lower US interest rates, Asian central bankers are set to have expanded policy space to counter the effects of slowing global growth. Note that India, Malaysia, and the Philippines have already cut their respective benchmark rates this year. The Fed’s dovish outlook should colour the thought process for Asian policymakers moving forward while potentially lowering the bar for more policy easing across the region, which may also translate into a propensity for currency weakness.
US-China trade tensions cloud outlook for policymakers, investors
Central bankers around the world have the unenviable task of contending with greater uncertainty stemming largely from the US-China trade conflict. The trade-related developments since May have only confirmed that the situation remains fluid, which clouds the outlook among policymakers and investors.
Risk sentiment appears hemmed in between the potential boost from more US policy stimulus and the dampening effects from protracted US-China trade tensions. The eagerly-awaited G20 meeting between US President Donald Trump and Chinese President Xi Jinping next week could nudge the risk dial higher, provided that both leaders agree to resume trade talks and bring the world one step closer towards a meaningful resolution to this ongoing standoff.
Gold soars to a 6-year high
Gold is on a tear, rocketing past the $1390 handle to notch its highest level since 2013, only to moderate below the $1380 level at the time of writing. The Dollar’s weakness that followed the Fed’s dovish pivot has sparked the surge in Gold prices, given the gloomier outlook over the global economy. With major central banks such as the Fed and the ECB citing greater uncertainties, such dovish tones from policymakers are roaring on Bullion bulls.
Gold’s rally may be capped at the $1394 resistance line, and could unwind some of its gains if US-China trade relations take a positive turn over the near-term. As long as global economic risks remain tilted to the downside, Bullion is very likely to hold on to most of its 2019 gains.