What does a dovish Fed mean for Asia FX? Goldman Sachs responds via Investing.com

Investing.com– The Federal Reserve’s first interest rate cut in more than four years quelled market fears of a recession, Goldman Sachs said, as increased risk appetite could boost rate-sensitive Asian currencies.

GS said in a recent note that it expects stronger performance in several Asian emerging market currencies, while rate markets are also expected to benefit from an accelerated Fed easing cycle .

It is expected to outperform in the short term, as are , , and .

On the other hand, it is expected to lag behind the persistent weakness of the Chinese economy. It is also likely to lag behind while it is set to remain flat given the Reserve Bank of India’s preference for currency stability.

While a dovish Fed is expected to prompt rate cuts at most Asian central banks, rate differentials are set to keep regional debt more attractive relative to the US.

GS expects six consecutive 25 basis point cuts by the Fed between now and June 2025, signaling a faster easing cycle than originally expected.

But the investment bank noted that the 2024 US election presented a “key risk event” for Asian markets, particularly the prospect of higher trade tariffs against China.

GS sees the won, ringgit and baht as the most vulnerable to headwinds.