Dollar Weakens as Muted Prospects for Fed Rate Hike Boost Gold 

• Bonds gain as odds of a 2016 U.S. rate increase stay below 50%
• Asian stocks near one-year high as Hang Seng Index climbs

The dollar weakened on speculation the Federal Reserve will be slow to raise interest rates amid uneven global growth, buoying gold and bonds. Asian stocks held near a one-year high as Hong Kong’s shares gained.

The U.S. currency slid against all major peers, dragging the Bloomberg Dollar Spot Index down for a second day. A gauge of emerging-market currencies rose to the highest since July 2015, gold extended Tuesday’s rally from this month’s low and 10-year bond yields dropped in Australia and Japan. About the same number of shares advanced as fell on the MSCI Asia Pacific Index and U.S. equity index futures declined. Crude oil lingered below $43 a barrel after industry data showed an increase in American stockpiles.

While better-than-expected U.S. jobs data briefly buoyed the dollar on Friday, odds of the Federal Reserve raising interest rates in 2016 remain below 50 percent amid evidence of faltering growth elsewhere. Asian stocks climbed over the last four days amid optimism central banks from London to Tokyo will keep expanding stimulus. India’s central bank said Tuesday its policy stance remains accommodative, while all of the economists surveyed by Bloomberg predict the Reserve Bank of New Zealand will cut interest rates to a fresh record on Thursday.

“The overriding issue in the Asia basket is the Goldilocks principle that the U.S. economy is healthy but not so buoyant enough to elicit any sort of Fed response,” said Stephen Innes, a senior trader at Oanda Asia Pacific Pte Ltd. in Singapore. There’s a perception that “central banks are going to remain accommodative for the foreseeable future.”

Japan reported a bigger-than-expected increase in machinery orders for June and a measure of consumer confidence in Australia climbed, reports showed Wednesday. France is scheduled to release industrial output data and earnings are due from companies including Prudential Plc and Sun Life Financial Inc.

Currencies

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell 0.4 percent as of 12:42 p.m. Tokyo time. The MSCI Emerging Market Currency Index added 0.4 percent, climbing for the fifth day in a row.

The yen added 0.6 percent to 101.32 per dollar, while South Korea’s won led gains in Asia with a 1.1 percent surge. New Zealand’s dollar strengthened 0.5 percent, while Australia’s dollar and South Africa’s rand advanced 0.3 percent.

“The U.S. dollar is unlikely to rally significantly against the commodity-sensitive currencies,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “Monetary policy settings around the world are going to be loose or looser going forward, and fiscal policy is expected to be more accommodative. That will support the global economic recovery and underpin commodity prices.”

Bonds

Yields on 10-year Australian sovereign bonds slipped six basis points to 1.89 percent, while rates on similar-maturity New Zealand notes fell five basis points to 2.17 percent ahead of Thursday’s monetary policy review. Japan’s 10-year yield fell to minus 0.1 percent from minus 0.085 percent.

U.S. Treasuries due in a decade yielded 1.54 percent, down another basis point following a four basis-point slide last session.

Commodities

Gold rose 0.6 percent to about $1,349 an ounce, after rallying 0.4 percent on Tuesday, while silver and platinum climbed more than 1 percent. Precious metals are being supported by stagnant bets on a Fed rate hike this year, with the probability of an increase by December at 45 percent in the futures market, down from 54 percent two months ago.

Crude oil fell 0.1 percent to $42.71 a barrel in New York. It slid 0.6 percent on Tuesday as American Petroleum Institute data indicated U.S. stockpiles rose by 2.09 million barrels last week. The Energy Information Administration raised its U.S. outputestimate for next year in a monthly short-term energy outlook released Tuesday and is forecast to report Wednesday that U.S. supplies declined by 1.5 million barrels last week.

Cotton dropped as much as 2.8 percent in New York. Prices slumped 3.9 percent on Tuesday, the most in 11 months, as rain in parts of the U.S. gave a boost to the nation’s crops.

Stocks

The MSCI Asia Pacific Index was up 0.3 percent, rising for a fifth day. Hong Kong’s Hang Seng Index added 0.5 percent and was headed for its highest close since November, while Japan’s Topix index declined 0.3 percent.

“An interest-rate increase in the U.S. is delayed and that’s good for all emerging markets including Hong Kong,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

Futures on the S&P 500 Index slipped 0.1 percent after the underlying gauge held near a record high. Germany’s DAX Index entered a bull market on Tuesday, with the Stoxx Europe 600 Index rising 0.9 percent in a fifth consecutive day of increases.

Source: Bloomberg

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