Thursday 12 September 2013

Asia shares nose higher, dollar under pressure

Asian shares eked out small gains and the dollar remained under pressure on growing expectations that the U.S. Federal Reserve's impending stimulus reduction might be smaller than some had believed.

MSCI's broadest index of Asia-Pacific shares outside Japan managed a gain of about 0.1 per cent, while Japan's Nikkei stock average added 0.2 per cent.

One regional standout was New Zealand's currency, which jumped to a four-week high of $0.8150 after the Reserve Bank of New Zealand held its benchmark cash rate steady at 2.5 per cent as expected. It said it would likely hold interest rates for the rest of the year but that rates would start to rise by mid-2014.

"As these are the most hawkish comments that we have heard from a major central bank, investors could start to see the New Zealand dollar in a new light and drive the currency up another 3 to 5 per cent," BK Asset Management managing director Kathy Lien said in a note to clients.

The Federal Open Market Committee meets next Tuesday and Wednesday. While it is still widely expected to begin scaling back its $85 billion monthly asset-buying programme, Friday's disappointing jobs data prompted many to believe the reduction will be more modest than some had previously expected.

A Reuters survey earlier this week showed most economists see the U.S. central bank trimming its asset purchases by about 10 billion.

The dollar index slipped about 0.1 per cent to 81.474, having fallen as far as 81.445 on Wednesday, breaking below its 200-day moving average and losing more than 1 per cent from a seven-week high hit on September 5.

The waning likelihood of an immediate U.S. military strike on Syria also continued to undermine the dollar. The five permanent veto-wielding powers of the U.N. Security Council met in New York on Wednesday to discuss plans to bring Syria's chemical weapons under international control.

The dollar bought 99.80 yen, down about 0.1 per cent. It moved away from Wednesday's high of 100.60 yen, which was the highest since July 22, according to Reuters data.

The euro was slightly higher at $1.3315 after rising as high as $1.3324 on Wednesday, its highest since August 29.

Reduced expectations of Fed tapering have eased pressure on emerging market currencies that recently sold off amid fears of capital outflows. That buys some time for the central banks of Indonesia, the Philippines and South Korea, which have to consider the impact of eventual Fed stimulus reduction when they review their policies at meetings on Thursday.

Markets like Brazil and India, which must import capital to finance spending, will feel the effects of the reduction more than countries such as Mexico and South Korea, which are less dependent on foreign funds.

On the commodities front, copper rose 0.2 per cent to$7,183.50 a tonne, lifted by an improved outlook for China's economy and reduced risk of a U.S. strike on Syria.

Gold edged slightly down to up to $1,364.96 an ounce, after touching a three-week low of $1,356.85 on Wednesday.

Oil was slightly higher, with Brent crude trading at $111.54.

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