EM Asian currencies likely to rally further during rest of September, remain susceptible to Fed’s monetary policy stance: Scotiabank

The emerging market Asian currencies are expected to rally further during the rest of September, while remaining susceptible to the Fed’s monetary policy stance and developments in the renewed US-China trade talks, according to the latest research report from Scotiabank.

The major central banks remain on track for further monetary easing, although the market has scale back some expectations of future Fed rate cuts amid recently easing trade tensions between the US and China.

More Fed monetary easing is needed to help weather the economic downturn, via reducing both risk-free interest rate and risk premium to bolster US stock markets. As consumer spending accounts for more than two-thirds of the US economy, the so-called wealth effect has a significant implication for US economic expansion.

According to the St. Louis Fed chart, there has been a significant shift in US household income to capital (ownership of businesses, land and assets) from labor (hourly wages and salaries).

"In the months ahead, US consumer confidence could start to fall finally amid falling ISM manufacturing PMI, demanding more Fed rate cuts. The US and China have extended an olive branch mutually, improving risk sentiment across the markets. The 10-year UST yield is likely to head for and reach the 2 percent mark before long," the report further commented.