Asian stock markets are mixed; US dollar sell-off resumes

Asian stock markets are mixed

Although Wall Street had a very positive session after a dovish FOMC, the picture is somewhat muddier in Asia. Mainland China continues moving in its own mini-universe, the Shanghai Composite and CSI 300 both jumping over 2.0% today. They are possibly boosted by Huawei becoming the largest mobile phone producer by sales, although most are confined to the Mainland itself. The Hang Seng has risen 1.0% in sympathy.

Japan’s Nikkei 225 is only 0.15%, capped by ever-increasing Covid-19 cases and new restaurant restrictions in Tokyo. Samsung Electronics’ results are weighing on the Kospi, which has edged just 0.25% higher. In contrast, Australia has shrugged off a worsening Covid-19 situation in the lucky country and taken its cue from Wall Street and the Fed. The ASX 200 has risen 1.0%, with the All Ordinaries increasing 0.90%.

Singapore is lagging after the MAS capped bank dividends yesterday. Banks have continued to be sold heavily today, dragging the Straits Times lower by 1.40%. That has spilt over to Kuala Lumpur, with the FKLCI falling 0.60%.

Despite the game of many halves being played out in Asia today, European stock markets should take their cue from Wall Street overnight and start the session in the green. Key risk points remain big tech’s Q2 earnings and US Jobless Claims.

US dollar sell-off resumes

A dovish FOMC and Fed Chairman were all markets needed to bring back the great US dollar sell-off from its one-day vacation. With the Fed backstop firmly in place on rising interest rates, the US dollar moved lower across the board, with the dollar index falling 0.50% to 93.26, just shy of my initial 93.20 targets. 

Once again, the Euro and Sterling led the general rise versus the greenback. Having held support at 1.1700, EUR/USD finished 0.65% higher at 1.1785 and now looks set to test resistance at 1.1800 ahead of further gains. GBP/USD rose 0.50% to 1.2995, just below resistance at 1.3000. A daily close above the latter opens further gains to the more formidable 1.3200 resistance zone.

Much the same story played out across the rest of the G-10 and emerging markets. A previously notable previous outperformer, the AUD/USD, rose to 0.7180 overnight. It appears to be struggling now ahead of 0.7200, however. Increasing public health concerns in the state of Victoria and the threat of community transmission of Covid-19 in New South Wales and Queensland are tempering economic recovery optimism. Until that picture clarifies, further gains by the currency will be much slower going. That is likely to also spill over into its little brother, the New Zealand dollar which is struggling to break 0.6700.

The US dollar has edged minuscule higher in Asia as profit-taking from the sharp moves in New York has set in. The effect will only be temporary though, and I expect the US dollar sell-off to resume once Europe arrives. The Federal Reserve has only reinforced the underlying drivers of the US dollar rotation after last night.

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