Asia Market Reacts to Fed’s Hawkish Stance

Asia market reacts to hawkish Fed, USD strength, AUD/USD pressure, and gold’s challenges amid market turbulence.

Talking Points

• Fed’s Hawkish Stance The surprising decision by the Federal Reserve to maintain interest rates.
• Financial Market Impact The effects on markets like US Treasury yields and the US dollar.
• Asian Market Reaction Asian markets responded and mentioned New Zealand’s GDP impact on NZD/USD and AUD/USD.

Asia Reacts to Fed’s Hawkish Stance-USD Strength, AUD/USD Pressure, Gold Outlook

The Federal Reserve (Fed) recently decided to maintain its current interest rates (5.25%-5.5%) during its latest meeting. However, the Fed’s tone came across as surprisingly hawkish, surpassing market expectations. Although the Fed’s dot plot still leaves the door open for a potential rate hike by year-end, the projection for 2024 has been scaled down to just two rate cuts, a significant decrease from the earlier forecast of four rate cuts in June. Furthermore, the Fed now anticipates the Fed funds rate in 2025 to reach 3.9%, up from the previous forecast of 3.4%.

Financial Market Turbulence-USD Strength, Treasury Yields Surge, and More

This shift indicates an extended period of elevated interest rates, causing a reevaluation of market expectations towards a more hawkish stance overnight. While the improved economic projections for GDP and reduced unemployment rates in 2023 and 2024 support the idea of a smooth economic transition, Fed Chair Jerome Powell’s press conference showcased a firmer stance. Powell downplayed the progress made in addressing inflation and argued that “stronger economic activity calls for a more proactive approach to managing interest rates.

In response to the Fed’s announcement, US Treasury yields surged to their highest levels in 16 years overnight, leading to a resurgence in the US dollar’s strength. As a result, the US dollar is on track to reclaim the 105.00 resistance level, supported by a bullish pin bar formation. Further gains could bring a challenge to the 106.84 resistance level. The weekly moving average convergence/divergence (MACD) suggests a potential return to positive territory, and the weekly Relative Strength Index (RSI) indicates that buyers maintain strong control.

Asian Markets React-Declines, GDP Surprises, and the AUD/USD Challenge

Asian markets are poised for a less optimistic start, with the Nikkei down 0.61%, ASX down 0.46%, and KOSPI down 1.06% at the current time. These declines reflect a risk-averse sentiment influenced by Wall Street’s performance overnight, surging bond yields, and the US dollar’s resurgence. US-listed Chinese stocks also faced losses overnight, with the Nasdaq Golden Dragon China Index declining by 0.9%, following a lackluster Asian session earlier in the day.

On the economic front, New Zealand reported second-quarter GDP growth significantly exceeding expectations, showing a 0.9% quarter-on-quarter increase compared to the anticipated 0.5%. This strengthened the resilience of the NZX, although it did not provide substantial support to the NZD/USD, which remains sensitive to overall market sentiment. Market sentiment will continue to be influenced by the hawkish tone from the recent Fed meeting, especially during the historically weaker period of the year from mid-September to early October.

The risk-sensitive AUD/USD has also faced downward pressure, marked by the formation of a bearish engulfing pattern. This pattern threatens to reverse the gains made over the past week, potentially forming a double-bottom pattern, with the 0.649 level as a critical neckline. Further downward movement could put the year-to-date bottom at risk, with a potential retest at the 0.636 level.

On the Watchlist-Gold Encounters Resistance

Gold prices struggled to maintain their initial gains overnight, facing resistance around the US$1,940 level, which coincides with the 100-day moving average (MA). Buyers now view this level as a significant resistance zone. Notably, gold prices have been unable to break above this resistance since June this year. Any further decline may bring the US$1,900 level into focus as immediate support.

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