DBS says the aussie is to be pressured by Fed rate hike

According to a note by the DBS Group’s FX strategist, Philip Wee

Also mentions other currencies such as the Korean won and Thai baht is to come under pressure as a result of the rate hike that is almost surely to come this week in the FOMC meeting.

Wee argues that the three countries have policy rates of a similar level as the Fed funds rate at 1.50%, and that could put downward pressure on their currencies when the Fed is expected to tighten by 25 bps on 21 March.

He says that the central banks in the three countries are in no hurry to follow the Fed as their inflation are below official targets – and that their currencies had a strong appreciation in 2017. Adding that the aussie is weakest of the three currencies mentioned due to additional pressure from a selloff in commodity currencies.

The aussie was the second worst-performing major currency in last week’s trading – only surpassed by the loonie:

Major currencies’ performance against the dollar last week