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Friday, January 21, 2022

Asian stocks pensive as dollar flexes muscles

By Ian Chua

SYDNEY (Reuters) – The U.S. dollar hovered at one-month highs against a basket of major currencies on Wednesday, while Asia shares drooped after a batch of U.S. data reinforced views that the days of easy money from the Federal Reserve are numbered.

U.S. new motor vehicle sales in June were poised to record their strongest month in more than 5-1/2 years, while factories posted a second straight month of gains in new orders in May.

Ordinarily these numbers should bolster risk appetite, but investors at this stage appeared to be more worried that the Fed will keep to its mantra of gradually withdrawing stimulus as the economic recovery continues.

The U.S. dollar gained broad momentum after breaking above 100 yen for the first time since early June. That helped push the euro towards a fresh one-month low near $1.2950. Traders said the threat of political instability in Portugal gave euro sellers an added excuse.

The rally in the greenback left the Australian dollar dangling precariously close to a three-year trough of $0.9110, a complete turnaround from Monday’s rally to $0.9253.

Equity investors, meanwhile, were quick to take profits in recent gains following a soggy finish on Wall Street. Some positioning ahead of the U.S. Independence Day holiday on Thursday and key U.S. jobs report on Friday were also cited for the market’s cautious stance.

MSCI’s broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> slipped 0.4 percent, pulling further away from a near two-week high set on Tuesday.

Japanese stocks managed to outperform the rest of Asia thanks to the fall in the yen. The Nikkei share index (NIK:^9452) slipped 0.1 percent after an early push to a fresh five-week high lost steam.

“A weak yen will definitely have positive effects on Japanese stocks, particularly on exporters,” said Toshiyuki Kanayama, senior market analyst at Monex Inc.

“However, the upside may be limited by some profit-taking after recent sharp gains.”

Markets generally turned a deaf ear to comments from Fed officials, who again sought to play down fears of any imminent tightening of policy.

Fed Board Governor Jerome Powell said the easy monetary policy will likely be warranted for “quite some time”.

William Dudley, head of the powerful New York Fed, went further to say he would not rule out raising the pace of asset purchases from the current $85 billion per month. But he said the central bank would need to see the recovery stumble badly before any such move.

Strength in the greenback was bad news for many commodities priced in U.S. dollars as it tends to make them more expensive, hurting demand.

Copper traded at $6,934 per tonne, nursing a near 1 percent fall on Tuesday, while gold was at $1,242 an ounce after suffering a 0.9 percent decline.

Oil, however, was shielded from sellers as turmoil in the Middle East unsettled investors. U.S. crude held above $100 a barrel, its highest since May 2012.

The market’s next focus is a private report on China’s services sector. Any disappointment will add to worries about a slowdown in the world’s No. 2 economy.

(Additional reporting by Tomo Uetake in Tokyo; Editing by Eric Meijer)

Source: Reuters

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