Dollar weakens after rally as Asia markets struggle

The dollar retreated against most major 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 decline on Wall Street 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 raised borrowing costs and hinted at three more increases next year — surprising many who had priced in two — as it prepares for steeper price rises if Trump makes good on promises of tax cuts and big infrastructure spending.

But in afternoon trading Monday the greenback was down against the yen, euro and pound, while some emerging market currencies — which were hammered by a flight of cash to the dollar — were also up.

However, the Malaysian ringgit touched lows not seen since the 1998 Asian financial crisis.

“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 any more. 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 closed in negative territory, the first loss after nine successive gains.

The index ended down 0.1 percent, with Nintendo diving more than seven percent as its new game Super Mario Run received tepid reviews, a far cry from the global phenomenon that was Pokemon Go earlier this year.

The firm’s shares fell more than four percent Friday.

“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 percent in the afternoon, Shanghai ended down 0.2 percent and Singapore lost 0.8 percent. There were also sharp losses in Taipei and Manila while Seoul was flat.

However, Sydney added 0.5 percent as the government stuck to its plan to return the budget to surplus by 2021 and despite downgrading forecasts for economic growth, with fears growing it could lose its AAA credit rating.

– Key figures around 0700 GMT –
Tokyo – Nikkei 225: DOWN 0.1 percent at 19,391.60 (close)

Hong Kong – Hang Seng: DOWN 0.7 percent at 21,867.20

Shanghai – Composite: DOWN 0.2 percent at 3,118.08 (close)

Euro/dollar: UP at $1.0460 from $1.0450 Friday

Dollar/yen: DOWN at 117.30 yen from 117.98 yen

Pound/dollar: UP at $1.2495 from $1.2482

Oil – West Texas Intermediate: UP 32 cents at $52.22 per barrel

Oil – Brent North Sea: UP 27 cents at $55.48

New York – Dow: DOWN less than 0.1 percent at 19,843.41 (close)

London – FTSE 100: UP 0.2 percent at 7,011.64 (close)