US Interest Rate Increase Should Beware Of Anti Climax Of US Dollar

The Fed, as expected by the market, raised the federal funds rate 0.25 to 0.25 to 0.5 per cent in the morning or North American time in the afternoon of December 16th, saying goodbye to an important step in the era of over easy monetary policy.

The Fed has raised interest rates for the first time since mid 2006, and the discount rate (discountrate) has correspondingly increased to 1 per cent.

The Fed said after the meeting that tightening the monetary policy cycle in the future will adopt a gradual (gradual) approach. It also describes a significant improvement in the employment market and is confident that inflation will reach 2% of the medium-term target.

Fed officials expect the interest rate in 2016 to be the same as in September, and the median interest rate will be 1.375 per cent at the end of next year, which means that there will be an opportunity to raise interest rates by 4 times. At the end of 2017, interest rates are expected to be 0.25 or 0.25, with a median of 2.375 percentage points.

The Fed also increased its forecast for economic growth in 2016 from 2.3% to 2.4%, while the unemployment rate dropped by 0.1 percentage points to 4.6% to 4.8%.

After raising interest rates, the United States will surely have a significant impact on the global market. Although the impact of this rate increase has been digested, the impact of US interest rate hikes should not be underestimated.

As for the impact of the US interest rate increase, the most important thing is the trend of the US dollar exchange rate.

That is, whether the US dollar will continue to strengthen after the US raises interest rates.

Because in general, a rising monetary interest rate means that the monetary policy of the country is tightened and funds may return to the country, and the exchange rate of the currency may be strong.

This is just general thinking.

But in reality, there may be an "anti climax", which is a matter for investors to pay special attention to after raising interest rates.

According to historical data, in the past 4 cycles of raising interest rates of the Federal Reserve, the US dollar exchange rate index rose mostly in the first half of the year, but most of them rose after the interest rate hike. Only one exception in 1988. The starting point of the 4 increase rate cycle was in 1988, 1994, 1999 and 2004. In the latter half of the year, the US dollar exchange rate index rose by 1.7%, 7.1%, 1.8% and 7.6% respectively.

After the Fed raised interest rates, there were 3 "anti climaxes" in the US interest rate cycle.

That is to say, some data have shown that the US dollar exchange rate has mostly fallen in the second half of the Fed's interest rate increase, which is mainly related to the economic cycle.

Every time the Federal Reserve starts to have confidence in raising interest rates, it is usually the middle of the business cycle, with a metaphor of 24 hours a day, around noon.

If the economic cycle has reached the middle stage, then the US economy may gradually descend after the US dollar raises interest rates, and the US dollar will also descend.

Because raising interest rate and strong dollar will make business operation more difficult and cost rise; the strong dollar is unfavorable to us export and leads to the decrease of export enterprises' profits; and the improvement of employment may also cause labor shortage in the employment market, and the acceleration of the wage growth of workers, which also makes the profits of enterprises affected.

This is from the perspective of the economic cycle, the Fed may raise interest rates may lead to economic cycle changes.

Of course, the most important thing is the global market.

How the currency exchange rate changes in the world's major countries will also have a greater impact on the future trend of the US dollar.

First, look at the euro.

Although Delagi, the European Central Bank, has been emphasizing that there will be no more worry about inflation in order to stimulate inflation, the recent unemployment rate and purchasing managers index in the euro area has improved, coupled with the decline in international oil prices and the Fed's interest rate hike, which has weakened Delagi's willingness to increase in the short term, and the euro is expected to stabilize at the current base point.

In addition to the New Zealand dollar, the Australian dollar has not been bad lately.

In recent years, the Australian government is committed to economic reform, which is mainly driven by resource-based exports.

Australia's recent employment figures are good.

301 thousand jobs in 11 months have been the best since 2006, a sign of success in reform.

Therefore, some analysts believe that the Bank of Australia may be in 2016.

Rather than cutting interest rates.

This is conducive to the stability or rise of the Australian dollar.

As for the Canadian dollar, the trend is largely related to the international oil price. The correlation coefficients between the two countries are as high as 0.918 and 0.876 in the past 20 years and 5 years respectively.

That is to say, the rise and fall of Canadian dollar will basically be related to oil prices.

If international oil prices continue to fall, the global economy is going bad, plus the strength of the US dollar, the performance of Canadian dollar may not be as good as that of New Zealand dollar and Australian dollar, and Canada will most likely reduce interest rates, which will have great pressure on the decline of the Canadian dollar exchange rate.

For the renminbi,

Basically, it is overvalued and the pressure of depreciation is greater. If the renminbi remains stable, it is also the "anti climax" factor of the US dollar.

Look at the yen again.

The broad sense of the Bank of Japan is that the depreciation of the yen benefits exports.

The yen depreciated by 21% and 13% in 2013 and 2014 respectively, compared with less than 2% in 2015.

The export side (annual rate) rose by an average of 9.6% in 2013 and an average of 4.8% in 2014, but on average it increased by 5.6% in the first 10 months of this year, reflecting the fact that Japanese exports actually benefited from the depreciation of the Japanese yen in 2013, but the effect was getting smaller and smaller.

On the contrary, the shortage of domestic demand is the most difficult problem in the Japanese economy, which is related to the aging of population and the low inflation rate.

Therefore, the recent Japanese Central Bank plus a large amount of strength is not high probability, the yen will not depreciate significantly.

As for sterling, the situation in 2016 may be the most uncertain.

Because, in 2016, will the British Parliament hold a referendum on the EU's departure? If Britain is to leave the EU, Britain will have to pay a heavy price.

The first drop in exports is likely to result in the collapse of the pound.

As for the monetary policy of the United Kingdom, the Bank of England has long stated that it was only in 2017 that it had the opportunity to raise interest rates, which made the pound less speculation.

But the uncertainty of the pound will remain high in 2016.

There are several major commodity currencies, if New Zealand dollar, Australian dollar and Canadian dollar.

The Central Bank of New Zealand recently lowered its benchmark interest rate from 2.75% to 2.5%, while the New Zealand dollar did not fall by 2%, or 67 cents.

The reason is that the New Zealand Central Bank in the statement of interest expected that New Zealand can achieve inflation target of 2%.

Considering the current hot property market in Oakland, the market estimates that the New Zealand interest rate reduction cycle has come to an end, and its interest rate will remain unchanged at the current level.

In short, the United States raised interest rates, due to major currencies in 2016, such as the euro, yen, Renminbi, Australian dollar, New Zealand dollar and so on, the probability of downlink is not large. Before the European and Japanese moves, the dollar exchange rate index was very high, and the opportunity was high to fall.

But the dollar's strength will not change much.