Dollar drops, Asia stocks under pressure as havens rally

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Dollar weakness drove down Asia Pacific equities on Monday while sovereign bonds and gold enjoyed marked gains as investors in the region came to grips with the implications of President Donald Trump’s failure to repeal Obamacare.

The dollar was down against a variety of currencies in Asia trade as investors in the region tempered expectations of pro-business reforms from the Trump administration after Republicans failed to unify around health care reforms last week.

The dollar index tracking the US currency against a basket of peers was down 0.4 per cent at 99.3, dropping further below the psychologically important 100-point mark and to the lowest level since February 2.

Japan’s yen was leading gains on the greenback with a climb of 0.8 per cent to ¥110.44 per dollar, the strongest level since November 22. South Korea’s won firmed nearly as much with a rise of 0.7 per cent to Won1,114.60 per dollar, near a five-month high.

The euro was up 0.4 per cent on the dollar at $1.0842, the strongest level since December 8, while the the pound had firmed 0.3 per cent to $1.2513, nearly erasing Friday’s softening of 0.4 per cent.

The Australian dollar was less invigorated by the weakness in its US counterpart, trading flat at $0.7618. Among major currencies only the Mexican peso was weaker against the greenback, off 0.3 per cent at 18.8112 per dollar.

Asia Pacific equities were faring badly at the week’s outset, with Japan-listed stocks feeling the squeeze from renewed yen strength.

Tokyo’s Topix index was down 1.4 per cent, with losses across the board led by falls of 2.1 per cent in real estate and 1.9 per cent in financials.

Sydney’s S&P/ASX 200 was under pressure despite the Aussie dollar’s lack of movement, with a 1.6 per cent fall in the materials segment helping to pull the benchmark index down 0.5 per cent.

Hong Kong stocks were little helped by their currency’s dollar peg as the Hang Seng index dropped 0.5 per cent. Both industrials and consumer staples segments fell 1.1 per cent. Shares in State-owned Chinese oil refiner Sinopec rose 1.8 per cent after the company reported annual profits rose 44 per cent in 2016.

Investors were seeking safety in sovereign bonds as the dollar fell on Monday. Ten-year US Treasuries saw yield, which moves inversely to price, fall 5 basis points to 2.366 per cent, the lowest level since February 28.

Regional government bonds were gaining as well, with the yield on Australian 10-year notes falling 6bp to 2.690 per cent, while that on Japan’s equivalent government bond was down 1bp at 0.049 per cent.

Gold rallied in the face of market volatility, climbing 1 per cent to $1,256.41 per ounce.

Oil prices were paring gains from a recovery mounted late in Friday trade. Brent crude, the international benchmark, was off 0.2 per cent at $50.72 a barrel, while US marker West Texas Intermediate was down 0.3 per cent at $47.82.

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