What Does a Dovish Fed Mean for Asia FX? Insights from Goldman Sachs.

Goldman Sachs recently indicated that the Federal Reserve’s first interest rate cut in over four years has alleviated market concerns regarding a recession. This development is likely to enhance risk appetite, particularly benefiting rate-sensitive currencies in Asia.

In a recent report, Goldman Sachs projected that various emerging market currencies in Asia would perform better, alongside an anticipated accelerated easing cycle from the Federal Reserve.

The Thai baht is expected to lead in performance in the near term, along with the South Korean won, Taiwanese dollar, and Indonesian rupiah. Conversely, the Chinese yuan is anticipated to underperform due to ongoing challenges in the Chinese economy. The Philippine peso is also likely to lag, while the Indian rupee is expected to remain stable, owing to the Reserve Bank of India’s commitment to foreign exchange stability.

Although a dovish stance from the Federal Reserve is likely to prompt rate cuts from most Asian central banks, the differences in interest rates are expected to keep regional debt appealing compared to U.S. options.

Goldman Sachs forecasts six consecutive cuts of 25 basis points by the Fed through June 2025, indicating a quicker easing cycle than previously expected. However, the investment bank cautioned that the 2024 U.S. elections pose a significant risk for Asian markets, particularly concerning the possibility of increased trade tariffs on China.

Additionally, Goldman Sachs views the South Korean won, Malaysian ringgit, and Thai baht as the most susceptible to challenges posed by trade dynamics.