Asia FX: Fear not the Fed - ANZ

Given how influential US monetary policy has been on Asian currencies in recent years, particularly during the 2013 taper tantrum episode, the evolution of Fed policy in 2018 could have an important impact on Asia, according to research team at ANZ. 

Key Quotes

“We believe there is no reason to fear further tightening by the US Federal Reserve. The Fed has delivered 100bps of tightening so far since December 2015, and is set to deliver another 100bps between now and the end of 2018 (25bps at the upcoming December meeting, and three 25bp hikes next year). In addition, the Fed has started to reduce their balance sheet. Asia’s fundamentals are in a much better shape now compared with the 2013 taper tantrum period, growth momentum is strong, and the region’s monetary policy will see some recoupling with the US.”

“There has been some concern over the impact of a flatter US yield curve. We note that since 2016, a flatter curve has tended to benefit Asian currencies. This relationship does not hold all the time, and could decouple at any point. We will continue to watch the yield curve, but will only become worried if it starts to signal a sharp decline in US growth that could derail Asia’s growth recovery.”