Dollar extends gains as Fed hike speculation builds

HONG KONG: The dollar extended gains in Asian trade Tuesday as investors swung their attention to expectations of another US interest rate hike next month, but equities struggled under the weight of profit-taking following the previous day's rally.

Regional markets surged Monday, with Tokyo and Seoul leading the way, following centrist Emmanuel Macron's victory in France's presidential election and last week's solid US jobs report that reinforced views of a strengthening economy. The better-than-expected reading on US payrolls had investors betting the Federal Reserve will stick to its plan to raise borrowing costs twice more this year - including once next month - having lifted rates in December and March.



The likelihood of further tightening has seen the dollar rally more than four per cent since hitting a low around 108.30 yen in mid-April.
Analysts say it could push further following the release of sales and consumer price index figures this week. "While we think the Fed will be resolute on its course towards at least two rate hikes, the market is underpricing the risk that (the central bank) will tighten rates more quickly than expected, so a robust retail sales print and a stronger-than-expected CPI print will be a call to action for dollar bills," said Stephen Innes, senior trader at OANDA, in a note.

The greenback was also up against the pound and euro - which has run out of steam since pressing higher leading up to the French election - and most other high-yielding currencies, including the South Korean won, Indonesian rupiah and Mexican peso. The Australian dollar was down almost one per cent on concerns about fresh figures pointing to a further growth slowdown in key export market China. Traders are also keeping an eye on the annual budget statement out of Canberra later in the day.



Tokyo's Nikkei ended 0.3 per cent lower a day after jumping more than two per cent to a 17-month high, while Sydney dropped 0.5 per cent, Wellington shed 0.2 per cent and Taipei retreated 0.2 per cent. Manila, Jakarta and Bangkok also turned lower. But Shanghai recovered from recent selling pressure to close 0.1 per cent higher, while Hong Kong put on 0.6 per cent. Singapore was also slightly up.

Seoul, which ended at a record high Monday, was closed as South Korea held its presidential election. The tepid performance Tuesday comes despite a record close for the S&P 500 and Nasdaq on Wall Street. In early European trade London rose 0.1 per cent, Paris added 0.4 per cent and Frankfurt was up 0.3 per cent.

Tokyo - Nikkei 225: DOWN 0.3 per cent at 19,843.00 (close)
Hong Kong - Hang Seng: UP 0.6 per cent at 24,718.09
Shanghai - Composite: UP 0.1 per cent at 3,080.53 (close)
London - FTSE 100: UP 0.1 per cent at 7,307.21
Euro/dollar: DOWN at $1.0905 from $1.0926 at 2100 GMT
Pound/dollar: DOWN at $1.2937 from $1.2944
Dollar/yen: UP at 113.46 yen from 113.26 yen
Oil - Brent North Sea: DOWN 10 cents at $49.24 per barrel
Oil - West Texas Intermediate: DOWN nine cents at $46.34
New York - Dow: UP less than 0.1 per cent at 21,012.28 (close)