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Asian Markets Fade on US Dollar Weakness, Flynn Departure

Asian Markets Fade on US Dollar Weakness, Flynn Departure

David Cottle, Analyst

Talking Points:

  • A weaker US Dollar and the early loss of a key Donald Trump appointee saw Asian bourses on edge
  • The Australian Dollar was particularly bullish thanks to an upbeat business confidence survey
  • Now the floor belongs to Federal Reserve Chair Janet Yellen

The Nikkei 225 fell victim to a weaker US Dollar on Tuesday, making life tough for regional stocks more generally. The greenback in turn wilted as a key presidential advisor resigned.

President Donald Trump’s National Security Advisor Michael Flynn stepped down after less than a month behind the desk, amid concerns over his Russian contacts. The US Dollar slid against most major rivals, with the Australian Dollar especially well supported. That was thanks to a very upbeat business confidence survey out of its home country.

Other Asian data were thin on the ground but markets did get a look at January’s official inflation figures out of China. These were much stronger than expected at both the consumer and factory gate level, but the statistics agency cautioned that prices may well have ticked up strongly ahead of February’s long Lunar New Year break rather than from inherent, durable strength.

The Nikkei closed down 1.13%. Toshiba added to its woes, falling 7% after saying that it could not yet announce when fourth quarter earnings for 2016 will be released. Australia’s ASX 200 benchmark closed just five points lower, but that modest weakness masked a slide from deep in the green earlier in the session.

The day’s big event is likely to be Federal Reserve Chair Janet Yellen’s Congressional testimony. The markets are currently pricing in about a 30% chance that US rates will rise next month, as they have for much of this young year. Investors will be desperate for any clues as to the likelihood of that, and as to whether the Fed’s December prognosis remains intact. Back then the central bank’s baseline expectation was that interests would rise three times in 2017.

Amid a generally weaker US Dollar, US and Brent crude oil prices recovered from their 2% slide which had been down to indications of rising US shale output and former USD appreciation. The US Dollar Index made three-week highs on Monday above the 111 handle, but has slipped back since.

Would you like to know more about trading the foreign exchange markets? The DailyFX trading guides are a great first stop.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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