Oct 3 (Reuters) – A look at the day ahead in Asian
markets from Jamie McGeever, financial markets columnist.
Yet another surge in the dollar and U.S. bond yields on Monday
suggests the momentum in these assets – which set the tone for
markets around the world – is not about to slow down just
because the final quarter of the year is underway.
If anything, it is accelerating. Asian markets could be in
for a rocky ride on Tuesday after the 10-year U.S. Treasury
yield leapt above 4.70% to its highest level since 2007 and the
dollar spiked to its highest in almost a year.
Investors in Asia are also awaiting the Reserve Bank of
Australia’s latest policy decision and guidance on Tuesday. But
it is the relentless rise in U.S. Treasury yields and the dollar
that will set the tone across the region.
From an Asian FX perspective, these moves can quickly
snowball. Higher U.S. yields boost the dollar, which pushes
Asian currencies lower, raising speculation that countries with
particularly weak exchange rates might intervene by selling FX
reserves, thereby pushing up U.S. yields. Repeat to fade.
Japan is in or around this kind of territory. The dollar is
a whisker from 150.00 yen – the yen is at its weakest in over 50
years on a real effective exchange rate basis – and Tokyo could
intervene at any moment, potentially selling some of its huge
stash of U.S. Treasuries.
But the Bank of Japan is also fighting on the domestic
bond market front, announcing on Monday that it will conduct
extra bond buying operations as the 10-year yield reached its
highest in a decade at 0.78%.
A closely-watched BOJ survey on Monday showed that Japan’s
business sentiment improved in the third quarter, with big
non-manufacturers’ mood brightening to levels not seen since
1991. This would strengthen the view that the BOJ is closer to
ditching 30 years of ultra-loose monetary policy, hence the rise
in domestic yields.
But the yen continues to slide, suggesting it is still being
driven by U.S. yields and the dollar side of the equation.
Something has to give.
Australia’s central bank is expected to keep its key
interest rate steady at 4.10% on Tuesday, according to a Reuters
poll, but hike it to a peak of 4.35% by the end of this year as
inflation remains above target.
All but two of 32 economists in a Sept. 27-28 poll expected
the RBA to hold its official cash rate steady. The two outliers
forecast a 25 basis-point hike.
Like nearly every currency in the world on Monday, the
Aussie dollar got crushed under the wave of U.S. dollar-buying,
falling more than 1% to $0.6363. It was its steepest one-day
fall in a month.
Here are key developments that could provide more direction
to markets on Tuesday:
– Reserve Bank of Australia rate decision
– Australia, Japan services PMIs (September)
– South Korea manufacturing PMI (September)
(By Jamie McGeever; Editing by Deepa Babington)
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