The Federal Reserve's interest rate cut in December became a “lifesaver”! Asian currencies ushered in a resuscitation

The Zhitong Finance App learned that for some Asian emerging market currencies, investors generally expect the US Federal Reserve to cut interest rates in December may have come at the right time. The Federal Reserve's easing policy will help the Bank of India ease the pressure on the constantly depreciating Indian rupee, and will also ease the weakness of the currencies of Indonesia, South Korea, and the Philippines. According to the data, the exchange rate of the US dollar against the Indian rupee rose above 90 for the first time this week, and the exchange rate of the won against the US dollar has fallen by more than 4% so far this quarter.

According to CME's “Federal Reserve Watch” tool, traders expect the probability that the Fed will cut interest rates by 25 basis points this month is close to 90%. And with Kevin Hassett, director of the US White House National Economic Council with a dovish stance, most likely to become the next chairman of the Federal Reserve, the current latest pricing in the interest rate futures market shows that the cumulative easing of the Federal Reserve will reach 85 to 100 basis points by the end of next year, which is equivalent to preferring pricing to cut interest rates by 25 basis points four times.

Wee Khoon Chong, a senior Asia Pacific market strategist at the Bank of New York in Hong Kong, said, “Further easing monetary policy by the Federal Reserve may be beneficial to the Asian foreign exchange market in general.” He pointed out that with increasing expectations for the Federal Reserve's interest rate cut in December, the Asian currency index has recovered from the November low.

Wee Khoon Chong said that regional currencies with strong economic growth momentum and sound fiscal policies are likely to perform best, including RMB and KRW. At the same time, he pointed out that due to high tariffs from the US and downside risks to economic growth, the Indian rupee may continue to be pressured, while the Philippine peso will be dragged down by the Bank of the Philippines's easing tendencies.

It is worth mentioning that the RMB has performed well in recent months. Optimism about improving Sino-US relations has driven the offshore renminbi up 0.9% since the quarter. The prospects for the Federal Reserve to further relax monetary policy and the possibility that the RMB will strengthen further are viewed by some analysts as reasons to be bullish on Asian currencies as a whole. TS Lombard strategists Daniel von Ahlen and Andrea Cicione said in a report that as the RMB bull market may begin, now is “the time to go long on Asian currencies.”