• Another US rate hike in the pipeline by Dar Wong
In August, US President Donald Trump chided Federal Reserve policymakers for supporting the interest rates too high, deterring the US’ economic growth. Since December 2015, policymakers have been tightening the credit seven times till now.
After Trump took over the office in January 2016, the Federal Reserve recorded five rate hikes that sustained Trump’s favour for making America great again. Now, it is sarcastic to believe in him saying rate hike is not in his wish list anymore.
The next US FOMC meeting will be held on September 26 and 27. Market analysts believe that another rate hike is highly probable in order to push the US dollar higher into stagflation. The recent US GDP in the second quarter season revealed 4.2 per cent gains marking the highest in the past four years.
In fact, Trump has acted very proud in his performance and brags about his good job. With the exiting trade war with China, Europe, North America and causing currencies of Emerging Markets to tumble, one of the propelling strategies is to fuel strong Dollar for repatriating offshore green notes from the bilateral countries.
As the US dollar has risen recently, putting a lid on commodity prices, currencies in Latin America and other emerging markets are facing huge losses in national reserves and exports. Since April, the eruption of US trade war against China has caused the yuan to tumble while the US dollar-yuan rate advanced from 6.40 to 6.95 area.
Fundamentally speaking, this is a correlational reaction in order to counterbalance the Chinese exports though the Chinese stock market has been falling tremendously.
Knowing the behaviour of Trump to be fickle, his prominent contest of raising interest rates might mean otherwise in this coming September meeting. In case of a rate hike, we reckon the US government might have an additional edge to “win” the “commercial conflict” by weakening peer currencies further, causing them to concede to his trade deal.
Beware of another rate hike since commodity prices will begin to falter and whipsaw again. In our opinion, crude oil prices will become rather independent and might elevate due to Iran sanction and impact of recent Hurricane Gordon on Gulf of Mexico. Hence, be prudent in your portfolio and watch for a possible drawdown in most of the market instruments along month end.