The dollar continued to brush aside other currencies Thursday after further proof of the booming US economy sent Treasury yields surging, but Asian equities sank with more Federal Reserve rate hikes looking certain.
A forecast-busting private jobs report, a surge in activity in the services sector and optimism in the retail market were the latest evidence that the world’s top economy is firing on all cylinders, helping send the Dow to a record close for the second day in a row.
However, the news also saw a sell-off in safe-haven Treasuries — a sign of confidence — sending the cost of borrowing to its highest level in seven years, in turn fuelling a surge in the dollar, helping it hit an 11-month high against the yen.
Hawkish comments from Fed boss Jerome Powell also provided momentum to dollar buying.
While the greenback eased slightly on Wednesday against the Japanese unit, it continued to push ahead against others, with easing concerns about a row between Italy and EU leaders unable to staunch a sell-off in the euro.
Higher-yielding and emerging market currencies were among the worst hit.
The dollar hit a fresh 20-year high against the Indonesian rupiah, while it was around 1.5 percent higher against both the Russian ruble and Mexican peso and 0.8 percent higher against the Australian dollar and South Korean won.
The New Zealand and Singapore dollars and Thai baht were also sharply lower.
The prospect of borrowing becoming even more expensive rattled equity traders in Asia.
Hong Kong lost 1.6 percent with property firms hit by concerns the higher rates — the city’s monetary policy is linked to the Fed’s — will hammer the booming real estate market.
Tokyo ended the morning down 0.2 percent, Singapore and Manila shed 0.9 percent, while Seoul, Taipei and Jakarta were each off more than one percent.
Sydney was up 0.5 percent while Shanghai was closed for a public holiday.
However, Stephen Innes, head of Asia-Pacific trading at OANDA was upbeat about the outlook.
“With positive signs gradually showing up for Shanghai and the Nikkei, Asia equities, while still pulling up the rear, should make leaps and bounds this quarter, even more if the US and China resolve their trade issues.” On oil markets both main contracts edged down after serving up yet another sharp rise on Wednesday on the back of comments from US Secretary of State Mike Pompeo and White House National Security adviser John Bolten regarding Iran that exacerbated worries about a supply hit from the region.
With US sanctions on Tehran due to be implemented early next month there are worries about narrowing supplies, while upheaval in Venezuela and the strong dollar have also helped the rally.
The fact that the gains came despite a rise in US stockpiles “indicates the markets remain singularly focused on Iran sanctions and the questionableness of OPEC’s amplitude to increase production quickly enough to offset any Iran supply loss”, Innes added.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: DOWN 0.2 percent at 24,054.80 (break)
Hong Kong – Hang Seng: DOWN 1.6 percent at 26,647.74
Shanghai – Composite: Closed for a public holiday
Euro/dollar: DOWN at $1.1476 from $1.1505 at 2100 GMT
Pound/dollar: DOWN at $1.2933 from $1.2966
Dollar/yen: DOWN at 114.29 from 114.46 yen
Oil – West Texas Intermediate: DOWN 28 cents at $76.13 per barrel
Oil – Brent Crude: DOWN 39 cents at $85.90 per barrel
New York – Dow Jones: UP 0.2 percent at 26,828.39 (close)
London – FTSE 100: UP 0.5 percent at 7,510.28 (close)