KUALA LUMPUR, May 16 (Bernama) -- RHB Investment Bank Bhd (RHBIB) expects two or fewer United States (US) Federal Fund Rate (FFR) cuts in September and December this year against its previous base case for three.
In its Global Economics and Market Strategy note today, it said this follows the US-China trade deal with both countries cancelling some tariffs and suspending others for 90 days on May 14.
The outcome is that the US tariff on Chinese imports would fall from 145 to 30 per cent while the Chinese tariff on some US imports would drop from 125 to 10 per cent.
China also halted and scrapped other non-tariff countermeasures, such as the export of critical minerals to the US, which it had put in place in response to the initial escalation in early April.
"Secondly, we have forecast a stronger US Dollar Index (DXY) going into the year-end, assuming global trade and geopolitical risks dissipate.
"The US dollar-ringgit (pair) could return to its 4.4-4.5 to the US dollar by December 2025.
"Third, we may see further weakening of safe-haven demand. The sharp de-escalation of US-China tariff risks may take away investors' safe haven demand, which could mean US 10-year yields staying above 4.40 per cent," it said.
Gold prices, given softer safe haven demand and stronger DXY, may mean gold prices fading lower towards the US$3,000 per ounce handle in the medium-term of three to six months.
The report said the key implication from this is investors may continue to look past risks, suggesting that prior fears of seeing higher US borrowing costs as a trigger for a global financial recession to dissipate.
The other implication is that the shallower cuts are likely to materialise in 2025, would have ramifications for ASEAN rates. Fewer FFR cuts would reinforce RHBIB's view for Bank Negara Malaysia (BNM) to keep its overnight policy rate (OPR) unchanged at 3.0 per cent, it said.
ASEAN economies, in traditional lock-step with the US Federal Reserve (Fed), such as Bank Indonesia, and to a smaller extent, Bank of Thailand, may see fewer policy rate cuts.
The third implication involves a short-term asset allocation strategy — overweight on equities, market-weight on fixed income and underweight on cash — over the next three months.
"In a nutshell, risk appetite may recover, but medium-term risks cannot be discounted.
"We caution against premature cheering as some risk may still be present after July 8, 2025 when the initial 90-day postponement of reciprocal tariffs expires," the investment bank said.
On Malaysia's gross domestic product (GDP), RHBIB said it is keeping its full-year forecast of 4.5 per cent in 2025, with upside risks towards 4.8-5.0 per cent on the back of tariff de-escalation into the second half of 2025.
-- BERNAMA
