Dollar weakens after rally as Asia markets struggle

Hong Kong - The dollar retreated against most of its peers in Asian trade on Monday as investors cashed in after a Federal Reserve-fuelled surge last week, while equities were also lower on concerns about China-US tensions.
The losses tracked a sell-off on Wall Street that came after it emerged China had seized an unmanned US sea survey probe from international waters in the South China Sea.

Thursday's move raised geopolitical concerns as Donald Trump prepares to enter the White House having hit out at Beijing in recent weeks over several issues from Taiwan to trade.

Last week the dollar soared after the Fed lifted borrowing costs and hinted at three more next year - surprising many who had priced in two - as it prepares for steeper price rises if Trump makes good on promises for tax cuts and big infrastructure spending.

But in early exchanges on Monday the greenback was down against the yen, euro and pound while emerging market currencies - which were hammered by a flight of cash to the dollar - were also up.

"I can't see the dollar index in a sustained rally - two rate hikes are priced into fed funds futures, and a lot of expectation is built into Trump's policies," Janu Chan, a senior economist at St. George Bank in Sydney, told Bloomberg News.

"On the other side of the equation, the (European Central Bank) and (Bank of Japan) are not likely to ramp up monetary stimulus anymore.

Profit-taking is most likely behind current US dollar weakness, but it's possible it's also due to geopolitical concerns on the reports that China seized the US drone."

Not-so super Mario

On stock markets Japan's Nikkei went into the break in negative territory, putting it on course for a first loss after nine successive gains.

The index was down 0.2%, with Nintendo extending its more than four percent loss Friday as its new game Super Mario Run received tepid reviews, a far cry from the global phenomenon that was Pokemon Go earlier this year.

"Investor expectations were very strong," said Hideki Yasuda, an analyst at Ace Research Institute.

"There are a lot of people writing on the App Store that Super Mario Run isn't very fun. Perhaps expectations were too high."

Hong Kong slipped 0.7%, Shanghai shed 0.2% and Singapore lost 0.4%. There were also losses in Taipei and Manila. Seoul was flat.

However, Sydney added 0.7% as the government stuck to its ambition of returning the budget to surplus by 2021 and despite downgrading forecasts for economic growth, with fears growing it could lose its AAA credit rating.