Fed Cut Opens the Door for Asia

The Fed finally delivered a quarter-point cut this week, bringing its benchmark rate down to 4.25% from 4.25%. Powell called it a “risk management cut,” not a panic move, but the message was clear: easing has begun, and more is likely to follow.

For Asia, that matters a lot. With U.S. yields lower and the dollar softer, Asian central banks suddenly have more breathing room to cut without triggering runaway currency depreciation. Some are already ahead of the curve, others are still cautious, but the Fed just shifted the playbook for the entire region.

Several Asian central banks didn’t wait for the Fed. The Bank of Korea cut its rate to a near three-year low back in May. The Reserve Bank of Australia slashed to a two-year low in August. The Reserve Bank of India went even further with a 50 bp cut in June. All three were pre-empting U.S. tariffs and weakening global demand. The Fed’s move now validates that approach, and gives them cover for further easing.

Earlier in the year, the big worry was that if Asia cut too aggressively, currencies would crumble against the dollar. But with the Fed turning dovish, those fears look overstated. A weaker dollar has instead created space for Asia to cut. Export-heavy economies like South Korea and Singapore are breathing easier as FX pressures ease, even while trade growth remains shaky.

The story isn’t uniform. Japan is holding steady, and even eyeing future hikes, as inflation stays above the BOJ’s 2% target for three straight years. China, meanwhile, kept its short-term rate at 1.4% this week, balancing between stimulus and the risk of blowing up another equity bubble. Both are exceptions, but both highlight how domestic conditions still set the pace.

The DXY is still stuck in a downtrend, but it’s showing signs of life. After bottoming near 96.22, the index has bounced toward 97.6. It’s not a trend change yet, just a relief rally inside a bigger bearish structure. For Asian currencies, this matters: a soft dollar still gives them cover to ease, but if DXY holds this bounce, short-term volatility could return. The key levels are clear, 96.50 support and 98.00 resistance. Until those break, the bias stays lower.

With U.S. yields lower and Asian growth uneven, the stage is set for a more extended easing cycle across the region. Real rates remain high, inflation pressures are muted, and the Fed’s shift has removed much of the FX risk. The outliers, China and Japan, only prove how much divergence is coming.

For us FX traders, this isn’t just regional noise. A dovish Fed plus easier Asia means pressure on the dollar and momentum for regional currencies like KRW, AUD, and INR.

Gold also keeps its tailwind as global policy leans dovish.

In short: the Fed opened the door, and Asia’s central banks are already walking through it.