Singapore, May 2 (BNA): Asian stocks fluctuated in cautious trade on Tuesday ahead of a slew of data releases and central bank meetings, which began with a surprise rate hike in Australia boosting the local dollar.
Markets were in a position for the Australian central bank to remain on hold and a 25 basis point rally sent the Australian dollar up around 0.8% to a one-week high of $0.6692.
Three-year Australian government bond yields also jumped, while Australian shares fell 0.7%.
Reuters quoted Joe Capurso, a strategist at the Commonwealth Bank of Australia, as saying: “One of the things that sticks to me is that they keep saying they may need to raise interest rates.”
“In addition to today’s rally, this is supportive of the Australian dollar,” he said, though he warned it could decline because there is a “reasonable chance” the Federal Reserve will take a similar approach at its meeting on Wednesday.
Elsewhere, there was jitters in short periods in the US Treasury market as a government borrowing cap loomed, and MSCI’s broadest index of Asia-Pacific stocks outside Japan was flat.
Mainland China markets are closed. Japan’s Nikkei index hit a 16-month high, before retreating slightly, as the banking sector declined.
Along with the Australian dollar, the yen stabilized after two sessions of sharp declines in the wake of the Bank of Japan’s decision on Friday to stick to ultra-easy monetary policy for the time being.
Politics stands in contrast with the US and Europe where central banks are deeper into the cycle and still continues, and the contrast with Australia sent the Aussie up nearly 1% against the yen.
The yen fell through its 200-day moving average on Tuesday and hit a two-month low for the dollar early Wednesday before settling at 137.40.
The Japanese currency hit a 14-1/2 year low of 151.08 against the euro on Tuesday and is trading as low as the Swiss franc in Refinitiv data dating back to the early 1980s.
The euro settled at $1.0987.
Much of Europe is also coming back from the Labor Day holiday on Tuesday, with final activity polls, preliminary inflation figures and a European bank lending survey all to be watched closely given the latest pressures in the sector.
European futures rose 0.2% in Asia, while S&P 500 futures were flat.
Interest rate futures trading is suggesting a 95% chance of a 25 basis point Fed hike on Wednesday, but markets are also cutting rates by the end of the year.
The two-year Treasury yield, which tracks short-term US interest rate expectations, was flat at 4.1451% in Asia. US credit default swaps – which reflect insurance against default – are illiquid but have risen recently as brinkmanship pushed the US government close to its borrowing limit.
Overnight, Treasury Secretary Janet Yellen said Treasury may run out of money to cover liabilities as soon as June 1. The one-month Treasury yield jumped about 16 basis points in Asia and the bid spreads were wide.
“The next few weeks will be unpredictable,” Goldman Sachs analysts said in a note, with uncertainty about an exact deadline not helping focus lawmakers’ minds.
“That could increase the risk that Congress will not raise the debt limit in a timely manner, which could result in non-payments but could also lead to a short-term extension, in which case the practice would be repeated after a few weeks or a few months.”
Rial