Dollar down, stocks up in Asia as US data dampens Fed hike talk

The Indonesian rupiah and Malaysian ringgit led an emerging market currency surge against the dollar in Asia Thursday, while stock markets also rallied after more weak US data fuelled hopes the Federal Reserve will delay an interest rate hike.

High-yielding, or riskier, assets snapped back after a two-day sell-off that came on the back of renewed concerns that China’s economic growth crisis will seep through to other countries.

Equity and currency markets have enjoyed a broad advance so far in October after enduring the worst quarter for four years in the July-September period, with most of the gains coming from speculation the Fed will keep borrowing costs on hold.

In India, shares in mining giant Adani surged after Australia’s government gave approval to a controversial project to build one of the world’s biggest coal mines. The announcement came just two months after the Federal Court blocked a Aus$16.5 billion (US$12.1 billion) mine largely on environmental grounds.

On Wednesday the US Commerce Department said retail sales rose half as much as expected in September while it also revised down its August result.

Also Wednesday the Fed’s closely watched Beige Book report on the economy said that while expansion continued modestly the stronger dollar in recent months was “restraining manufacturing activity as well as tourism spending”.

The news comes after a below-par jobs report at the start of the month and adds to a sense that the world’s biggest economy is stuttering, giving the Fed more reason to hold off a rate rise.

With borrowing costs expected to remain at record lows in the near future investors moved into riskier assets. The rupiah surged 2.4 percent and the ringgit rallied 2.2 percent against the dollar in the morning before easing slightly to sit 1.7 percent and 1.3 percent higher respectively in late trade.

South Korea’s won was up 1.5 percent, helped by a decision by the country’s central bank not to cut interest rates despite lowering its economic growth outlook.

The Taiwan dollar and Thai baht each rose more than 0.6 percent, while the Indian rupee was 0.4 percent higher.

– ‘No reason to raise rates’ –

“What you’re seeing in the movement right now is an unwind of the bullish-dollar story,” Douglas Borthwick, head of foreign-exchange at New York brokerage Chapdelaine & Co, told Bloomberg News.

“The Fed has no reason to raise rates when you’re getting the data that we’ve been getting lately.”

Emerging market currencies have suffered heavy selling over the past year as the Fed was expected to lift rates, with dealers shifting into the United States looking for higher and safer returns.

“The US dollar index was drifting lower for much of the day yesterday, but the move was compounded by the release of disappointing US retail sales data,” Kymberly Martin, a senior market strategist at the Bank of New Zealand, said.

“In the detail the disappointment appeared genuine, likely emboldening doves within the US Fed.”

The greenback was also under pressure against its major peers. In New York Wednesday it fell to 118.88 yen while the euro hit $1.1469, compared with 119.68 yen and $1.1385 in Asia earlier in the day.

And on Thursday it weakened further, buying 118.74 yen while the euro was at $1.1488.

Hopes for a continued low Fed rate provided support to regional stock markets, with Hong Kong — where monetary policy is tied to US policy — climbed more than two percent in the afternoon.

Bargain buying also helped equities rally following broad losses on Tuesday and Wednesday after weak Chinese trade and inflation data reignited worries about the world’s number two economy.

By the end of trade Seoul was 1.18 percent higher, Tokyo added 1.15 percent and Sydney gained 0.63 percent.

Shanghai closed 2.32 percent higher, with dealers buoyed by hopes Beijing will unveil more economic stimulus measures.

Mumbai-listed shares in Adani surged more than ten percent following news that Canberra had given its blessing to the Carmichael open-cut and underground mine, which has been in planning for more than four years and faced numerous legal and approval hurdles.

However, British bank Standard Chartered and the Commonwealth Bank of Australia have withdrawn as financial advisers, while major European and US banks have refused to fund the project due to environmental concerns.