Dollar weakens with Asia stocks amid cautious tone

Sydney - The dollar weakened and equities retreated as investors turned cautious following a seven-week surge for global stocks. Gold rose and oil extended declines.

Havens were in favor, with the US currency trading at an eight-month low and 10-year Treasury yields near the lowest since November. The yen strengthened to the highest in more than a month, weighing on Japanese shares.

The Aussie dollar reversed losses after the central bank left its benchmark interest rate unchanged. Oil extended declines as traders downplayed concerns that Qatar’s turmoil would hamper supply from the country.

With central bank policy makers in the US and Europe all in quiet periods ahead of key policy decisions, attention this week has shifted to Britain’s election and testimony from former FBI head James Comey on Thursday.

The latest readings on America’s economy did little to divert from the view that growth remains intact, with traders now forecasting a more than 90% chance of an interest-rate increase next week.

"There’s a strong sense of wanting to wait-and-see among investors ahead of former FBI director Comey’s testimony and the UK elections," said Yutaka Miura, a senior technical analyst at Mizuho Securities in Tokyo. "With both US shares and Japanese shares trading near fresh highs, there’s no need to jump on the bandwagon now, ahead of key events."

These are some important upcoming events:

The European Central Bank releases its policy decision Thursday. Mario Draghi speaks later that day. Don’t expect policy changes, but the bank may drop the reference to “downside” risks to growth, while reiterating a weak inflation outlook, Bloomberg Intelligence said.

Surveys of UK voters over the past few weeks have indicated a tightening race for Thursday’s election, increasing the chance that Prime Minister Theresa May might not bolster her majority.

Comey’s testimony may offer clues to how the probe into the Trump campaign’s contact with Russian officials will impact the administration’s ability to push through its policy agenda.

Here are the main moves in markets:

Currencies

The yen rose 0.5 % to 109.89 per dollar as of 2:15 in Tokyo, reaching the highest level since April 25.  The Bloomberg Dollar Spot Index fell 0.2%, trading at the lowest since October.

The Australian dollar was little changed at 74.89 US cents, erasing a decline of 0.4%. The New Zealand dollar rose 0.3%.

The Reserve Bank of Australia kept its benchmark interest rate unchanged amid a mixed picture of weaker growth signals, a stronger jobs market and a slowing of house prices.

The Mexican peso retreated 0.1% after jumping 1.8% on Monday. President Enrique Pena Nieto’s party forged ahead in the election for governor of Mexico’s largest state.

Stocks

Japan’s Topix index fell 0.4%. Australia’s S&P/ASX 200 Index dropped 1.4%, the most in two weeks as banks led declines. South Korea is closed for a holiday.

Hong Kong’s Hang Seng Index rose 0.3% while the Shanghai Composite Index slipped 0.3%.

Futures on the S&P 500 Index dropped less than 0.1% after the underlying gauge slid 0.1% on Monday.

Qatari stocks plunged the most since 2009 on Monday after four US Arab allies isolated Qatar over its ties to Iran.  

Commodities

Gold climbed 0.4% to $1 284.64 an ounce, advancing for a third day to the highest since April 24. WTI crude fell 0.5 percent to $47.17 a barrel, reversing an earlier gain. Oil fell 0.6% in the previous session as investors shrugged off the political clash in the Gulf.

Saudi Arabia and three other Arab countries severed most diplomatic and economic ties to Qatar to punish the nation for its links with Iran and Islamist groups.

Bonds

The yield on 10-year Treasuries declined one basis point to 2.17%, after climbing two basis points in the previous session. Australian benchmark yields was flat at 2.39%.