The rate cut will ease the pressure of tight monetary policy and assuage concern about weakening local currencies, said Gary Dugan, chief executive officer at Dalma Capital. The outcome is good for risk assets and high-yield currencies but FX moves may be muted in Asia as the Chinese yuan serves as an anchor, said Brad Bechtel, global head of foreign exchange at Jefferies.
Here is a selection of comments from analysts:
Straits Investment Management (Manish Bhargava, chief executive officer)
Lower US interest rates could boost risk appetite for Asian stocks, driving capital inflows into emerging markets as investors seek higher returns.The initial phase of the Fedโs normalization cycle has been more assertive than expected, as the central bank recalibrated its policy focus to address labor market conditions. While inflation remains a key concern, recent softening in employment metrics has prompted the Fed to adjust its strategy, emphasizing support for the job market in the near term.
Dalma Capital (Gary Dugan, chief executive officer)
The Fed action should be taken very positively by Asian markets. It relieves the pressure of tight monetary policy and with likely weakness in the dollar it allows Asian central banks to ease monetary policy with out fear of prompting weakness in their own currencies.
We expect further strength in interest-rate sensitive stocks such a financials and REITs. We also expect domestic consumer stocks to do well in anticipation of higher confidence among consumers. Borrowing costs have been penal and now they should be headed down.
BetaShares Holdings (Chamath De Silva, head of fixed income)
Itโs actually anyoneโs guess. Iโm not expecting big moves and it wouldnโt surprise me if Asian equities end the session little changed and wait for more clues from tonightโs follow-up US market reaction.
In some ways, it was the classic market reaction for the start of an easing cycle: steeper curve, marginally higher break evens, but it was also consistent with a hawkish surprise in other markets: weaker gold, higher yields in the belly and long end, and stronger US dollar.
Jefferies (Brad Bechtel, global head of foreign exchange)
Price action post-Fed was a mild position flush and perhaps there will be more US dollar buying in Asia, particularly against the yen, won and yuan, while traders may take profits following the rallies in rupiah, ringgit and baht.
Itโs good for risk, which implies its good for higher-beta currencies and those are generally those currencies with higher real yields. But I donโt expect a big reaction in Asian FX as the yuan more or less anchors things.
Wells Fargo (Brendan McKenna, emerging-market strategist)
Asia FX will struggle for direction and may see some profit taking after the recent rally. If data points to 25-basis-point cuts from here, that would strengthen the dollar.
For the Asia FX rally to continue, you might have to see another 50-basis-point cut from the Fed. Today by itself, for now, doesnโt offer a ton of direction for Asia FX or even broader markets.
PT Bahana Sekuritas (Satria Sambijantoro, head of research)
The dovish cut is effectively giving appreciation momentum for EM currencies with the rate cut so far not being interpreted as a gloomy view on the US economy. We expect foreign flows to ASEAN and Indonesia to gather momentum, with Indonesia being at the Goldilocks zone of resilient GDP growth, relatively high credit expansion and front-loaded monetary policy easing.
Commonwealth Bank of Australia (Kristina Clifton, senior currency strategist)
The Australian dollar could fall in the Asian session against the US dollar and kiwi as it faces jobs data and the risk of a rise in unemployment. Should the jobless rate rise to 4.3%, market pricing for a 25-basis-point cut in the cash rate by the Reserve Bank of Australia before year-end can increase, and perhaps be pulled forward to November, from December.
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