Asian Stocks, FX May See Short-Term Rally After Dovish Fed

(Bloomberg) -- Asian stocks and currencies are likely to see recent pressures at least for the short-term after the Federal Reserve signaled it may be done with their tightening campaign, according to strategists.  

The US central bank's policy-setting Federal Open Market Committee held interest rates at a 22-year high for a second straight meeting on Wednesday. It said in a post-meeting statement that “tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.” 

Here is selection of comments made to Bloomberg: 

Brad Bechtel, the global head of foreign exchange at Jefferies in New York:

“Think the market is getting comfortable with the idea that US yields are largely contained at the long end, at least for now and that is drawing in more carry players”

“There should be a bid tone to emerging markets FX in Asia given how heavy USD/JPY traded post the Fed and Treasury funding announcement. There is no risk of yen intervention at the moment unless the currency pair jumps higher or oil surges.”

Brendan McKenna, emerging market strategist at Wells Fargo in New York:

“I would expect a rally across EM Asia. It does seem as if the Fed has hit its terminal rate and rationale for additional hikes may be starting to diminish.”

“I think the Korean won, Philippine peso and Indonesian rupiah can see the most upside following the Fed's comments. These currencies are a bit more liquid and are a few of the more “high beta” currencies in Asia”

“There maybe some relief for Asian central banks, but they will operate with caution. They may not be ready to start cutting yet, but if yields in the US trend lower from here there may be some justification to start considering an easing cycle.”

Kerry Craig, a global market strategist at JPMorgan Asset Management in Melbourne:

“The headwind from higher rate and a higher USD should abate for EM and Asian assets and ease some of the pressures on Asian central banks that have been recently hiking and been focused on currency moves. However, a weaker growth outlook for the US economy suggests weaker demand which may weight on export growth across the global goods chain. Balancing these two forces we are fairly neutral toward EM equities.”

Matthew Haupt, fund manager at Wilson Asset Management in Sydney:

“Likely to see a short term rally because risk of tightening event is off the table, also volatility falls post events and has lead to lower yields, and lower USD, all very good for risk assets in the short term.” 

“Fed is trying to maintain a slightly hawkish view to keep the short end of the curve pricing in low probability of rate hikes. They can't afford to let short end loosen from here despite some softening in economic conditions and leading indicators. So Powell was trying incredibly hard to keep message fairly balance to not change the probabilities of outcomes too far from current conditions.”

James Knightley, chief international economist at ING Financial Markets in New York:

“Markets perceived today's Fed announcement and press conference as moderately dovish, and the drop in Treasury yields would – in theory – point to a softer dollar. Looking ahead, we remain of the view that the dollar's direction will be set by US data as the Fed's reiteration of its higher for longer approach and threat of another hike still keep the big bulk of the bullish dollar narrative alive.”

--With assistance from Michael G. Wilson.

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