The dollar’s gains were held in check by diminished expectations for a rate hike by the Federal Reserve this year in the wake of last Fridays unexpectedly weak U.S.jobs report for September. “Short-covering by those who had shorted stocks on those worries will likely support the market for a while”.
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Asian stocks rallied on Tuesday, boosted by news that the Bank of Japan might further loosen its monetary policy this week.
European shares rallied, extending strong gains from the previous session on expectations the USA and European central banks will maintain equity-friendly monetary policy in the coming months. Goldman Sachs, J.P. Morgan Securities and Barclays, which had warned clients of a possible surprise easing Wednesday, expect the central bank to escalate its easing measures by then.
The US dollar held its ground against major currencies, buying 120.45 yen in Tokyo – little changed from 120.46 yen in New York overnight. Last year, the BOJ shocked markets by expanding its massive stimulus spending at the October 31 meeting and sent the yen tumbling.
It also weakened against the British pound, Canadian dollar, New Zealand dollar and Australian.
“The market seem to be driven by speculation on policy steps, including uncertain benefits from the Trans-Pacific Partnership (TPP)”, said Hitoshi Ishiyama, chief strategist at Sumitomo Mitsui Asset Management.
The Fed has said it is likely to raise rates this year as the economic recovery progresses, but surprisingly soft U.S.jobs data published on Friday led many market players to abandon expectations of a rate hike by the year-end. That boosted sentiment towards riskier assets, which have been long hit by threats of higher dollar borrowing costs as well as fears of a deeper slowdown in China.
But the benchmark Nikkei Stock Average NIK, +0.75% finished up for a sixth straight day, at its highest level in nearly a month, a sign a few investors anticipate action at the Bank of Japan’s next policy meeting, set for October. 30. S&P 500 futures fell 3 points, or 0.14% to 1972, while Nasdaq 100 futures declined by 10 points, or 0.22% to 4301.
Brent edged closer to the top end of its rough $46-$50 trading band in the past month. Ahead of this, the pound was almost flat from late USA trade at $1.5311. The euro was trading at 134.76 yen, down about 0.1 percent.
Yujiro Goto, currency strategist at Nomura, said the expected delay to a Fed hike had hit the dollar.
The dollar index, which tracks the greenback against a basket of six major currencies, slid to 95.218, its lowest level since September 21.
While the RBA is widely expected to keep rates at a record low of 2 percent, but the market will be scrutinising the policy statement for clues on the central bank’s next move.
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After the decision, the Australian dollar erased light earlier losses and added about 0.2% to $0.7101, moving back towards a two-week peak of $0.7112 on Monday.
