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US Dollar Decline Boosts Asian Currencies and Markets Amidst Fed Rate Cut Hints

Dollar's decline signals boost for Asian currencies and markets, amid Fed's rate cut hints and global commodity shifts.

By Athena Xu

4/3, 19:33 EDT

Key Takeaway

  • US dollar's decline, influenced by Fed Chair Powell's rate cut hints, boosts Asian currencies and markets.
  • Japanese yen stands to gain notably; Chinese equities may struggle post-NPC; India's new trade deal could spur market optimism.
  • Despite Asian equities selloff, gold hits record high, reflecting strong safe-haven demand amidst market volatility.

Dollar's Decline and Market Implications

The US dollar experienced a notable decline, which is poised to positively impact Asian currencies and financial markets. This shift comes in the wake of US Federal Reserve Chair Jerome Powell's affirmation of potential rate cuts later in the year, sparking a rise in US stocks and a decrease in the value of the greenback. The ISM services data, revealing a strong goods sector juxtaposed with a tepid services economy, did not significantly alter bond traders' expectations for upcoming rate cuts. Additionally, the decision by OPEC+ to maintain current oil production levels is expected to push Brent crude prices beyond $90, while a surge in gold prices leads commodity gains, potentially aiding in the battle against inflation.

Asian Markets Respond

Asian currencies and bonds are set to receive a boost from the US dollar's downturn. February's US labor market report indicated a softening job market and a deceleration in wage growth, providing the Federal Reserve with more flexibility to consider easing monetary policy sooner. The Japanese yen, in particular, is expected to benefit significantly from these developments, with domestic factors such as wage negotiations and potential policy moves by the Bank of Japan further influencing the currency's strength. However, Chinese equities may face challenges in rallying due to underwhelming outcomes from the National People's Congress (NPC) and skewed inflation data, while India's new free trade agreement with four European countries could enhance bullish sentiment in its market.

Global Equities and Commodities

Despite a broad selloff in Asian equities, the US dollar remained subdued against major currencies. Markets in Australia and South Korea led the declines, with Japanese and Hong Kong stocks also facing pressure. Taiwanese equities mirrored regional trends without significant reaction to the island's strongest earthquake in 25 years. Meanwhile, gold reached a new record high, signaling strong investor interest in safe-haven assets amidst market volatility. The S&P futures saw a slight decrease, and the Treasury 10-year yield stabilized around 4.35%.

Street Views

  • Cameron Crise, Bloomberg Analyst (Neutral on the US economy):

    "Cameron Crise wonders if higher rates have just made the US economy fitter."

  • Pimco (Bullish on fixed-rate mortgages impact):

    "Pimco is betting the prevalence of fixed-rate mortgages in the US will also result in fewer rate cuts."

  • Nour Al Ali, Bloomberg Analyst (Bullish on commodities against inflation):

    "Gold’s record-setting surge is leading gains in commodities which Nour Al Ali posits could help in the fight against inflation."

Management Quotes

  • Jerome Powell, Fed Chair:

    Affirms rate cuts later this year.

  • Steve Cohen, Billionaire Investor:

    Sees a four-day work week in our future -- and he’s investing billions in golf.