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Abstract:Asia Pacific stocks got a boost from hopes for progress in the US-China trade deadlock when a delegation from Beijing goes to Washington this week
Asian Stocks Talking Points:
Most stocks managed gains as anew week got under way
Trade hopes were once again underpinning sentiment
The US Dollar weakened on suspicions that its interest rate support could wane this week
Find out what retail foreign exchange investors make of your favorite currencys chances right now at the DailyFX Sentiment Page
Asian stocks markets made broad gains Monday with trade hopes once again to the fore. Chinas Vice Premier Liu He is heading to Washington this week. Investors reportedly remain leery that any sort of durable trade deal between China and the US is at hand, but there does seem to be some hope for constructive dialogue and, perhaps, a hold on the tit-for-tat tariffs imposed last year.
Trade isnt the only factor driving markets of course. Investors will know current thinking at the US Federal Reserve this week. The central bank will give its January monetary policy call on Thursday Asia Pacific time. No change is expected to the Federal Funds rate.
Australian markets were closed for a holiday break on Monday, but most of the open Asian stock bourses managed to gain. The Shanghai Composite added 0.3% with the Hang Seng 0.4% higher. The Kospi was up by a similar amount as its close loomed, with the Nikkei 225 bucking the trend. It was down by 0.3%.
The US Dollar slipped back as investors bet that the Fed will signal much more data-dependent interest rate action ahead. The Fed may also acknowledge growing risks and uncertainties around global growth. In Asian hours Monday the Australian and Kiwi Dollars posted gains against the Greenback, with the Japanese Yen also gaining, despite Japanese inflations weakening last month.
AUD/USD continues to bounce at the upper limit of the daily chart downtrend channel which dominated 2018s trade.
The Australian Dollar may well hold up above this level this week, especially if a more dovish Fed offers the US Dollar a general boost. However, the Aussie still conspicuously lacks interest rate support, and its possible that this fact will regain the driving seat in due course, taking AUD/USD lower yet.
Gold prices held up near seven-month highs as suspicions that US rates wont rise much further bolsters the case for the non-yielding metal. Crude oil prices slipped on a rising US rig count and worries about further slowing in China.
Monday‘s remaining data slate is a little sparse, but investors can still look forward to the Chicago Federal Reserve’s national activity index and the January manufacturing snapshot from the Dallas Fed.
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The Japanese Yen rose 0.7% against the US Dollar after BoJ Governor Kazuo Ueda hinted at potential rate hikes. This coincided with a recovery in Asian markets, aided by stronger Chinese stocks. With the July FOMC minutes already pointing to a September rate cut, the US Dollar might edge higher into the weekend.
The Australian Dollar (AUD) traded sideways against the US Dollar (USD) on Tuesday, staying just below the seven-month high of 0.6798 reached on Monday. The downside for the AUD/USD pair is expected to be limited due to differing policy outlooks between the Reserve Bank of Australia (RBA) and the US Federal Reserve. The RBA Minutes indicated that a rate cut is unlikely soon, and Governor Michele Bullock affirmed the central bank's readiness to raise rates again if necessary to combat inflation.
JPY strengthened against the USD, pushing USD/JPY near 145.00, driven by strong inflation data and BoJ rate hike expectations. Japan's strong Q2 GDP growth added support. However, USD gains may be limited by expectations of a Fed rate cut in September.
Gold prices remain above $2,500, near record highs, as investors await the Federal Open Market Committee minutes for confirmation of a potential Fed rate cut in September. The Fed's dovish shift, prioritizing employment over inflation, has weakened the US Dollar, boosting gold. A recent revision showing the US created 818,000 fewer jobs than initially reported also strengthens the case for a rate cut.