US dollar drops to 11-month low as Asian stocks fall

[HONG KONG] The US dollar dropped against all of its G-10 peers after weaker-than-expected US economic growth dimmed prospects for a Federal Reserve interest-rate increase at a time when monetary easing is being put on hold elsewhere. Asian stocks fell and crude oil traded near US$46 a barrel.

The Bloomberg Dollar Spot Index sank to an 11-month low, while the yen was headed for its biggest weekly jump since 2008 after the Bank of Japan unexpectedly refrained from adding to record stimulus on Thursday.

Japanese financial markets are shut for a holiday and an MSCI gauge of shares in the rest of the Asia-Pacific region slid for the third day in a row.

The greenback's decline is proving a plus for commodities, which are poised for their best monthly gain since 2010. Crude has jumped 20 per cent since the end of March, while gold and silver are at 15-month highs.

The BOJ's surprise decision capped a week of fence-sitting for central banks, with the Fed keeping interest rates steady for a third straight meeting and policy makers from New Zealand to Brazil also holding the line.

The slowest pace of American economic expansion in two years reignited some concern over the global outlook, and pushed out bets on the potential timeline for tighter Fed policy.

"Central banks look like they have run out of bullets to a degree," said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about US$7.2 billion.

"We're getting to that point where there are limits to the results they can get from anything more they do. This points to a fragile outlook with still a lot of risks out there."

South Korea's industrial output unexpectedly declined in March, while Taiwan's economy shrank more than analysts forecast in the first quarter, data showed Friday.

The euro area will release figures for gross domestic product, inflation and unemployment, while US updates on consumer confidence and household spending are also due. Russia's central bank has a policy meeting and six out of 41 analysts surveyed by Bloomberg predict the benchmark interest rate will be cut. The remainder forecast no change.

CURRENCIES

Bloomberg's dollar gauge, which tracks the greenback against 10 major peers, slipped 0.3 per cent as of 12.48pm in Hong Kong and was set for a 1.7 per cent weekly loss.

Funds futures show odds of the central bank boosting borrowing costs in June fell to 12 per cent following Thursday's GDP update, having held at around 21 per cent when the Fed concluded its policy meeting on Wednesday.

The yen strengthened against all 16 major peers for the second day in a row, climbing as much as 1 per cent to 107.08 a dollar, the highest level since October 2014.

It surged 4.2 per cent this week as the BOJ defied economists' expectations that stimulus would be stepped up.

BOJ Governor Haruhiko Kuroda told reporters after the review that he wants to wait and see how the introduction of negative rates in January affects the economy.

"The BOJ seems to have descended into a haze of confusion," said Richard Jerram, the chief economist at Bank of Singapore.

"They mismanaged expectations running up to the meeting - and that is clear from the market reaction."

The yuan rose less than 0.1 per cent versus the greenback after China's central bank boosted its daily reference rate by 0.6 per cent, the most since a dollar peg ended in July 2005. The steep increase in the fixing reflects the dollar's slide rather than any policy intentions, according to Ken Cheung, a currency strategist at Mizuho Bank Ltd. in Hong Kong.

STOCKS

The MSCI Asia Pacific excluding Japan Index fell 0.5 per cent, headed for a 1.7 per cent weekly decline.

With the exception of Australia, benchmark shares gauges retreated across the region.

Futures on the Nikkei 225 Stock Average tumbled 2.6 per cent in Singapore, while contracts on the Standard & Poor's 500 Index were down 0.2 per cent.

Hong Kong's Hang Seng Index declined 1.4 per cent, led by slides in energy stocks. PetroChina Co slumped 3.4 per cent after posting its first loss since it listed in 2000, while Cnooc Ltd dropped 3.1 per cent following a decrease in first- quarter revenue. Exxon Mobil Corp, the largest US energy company, and Chevron Corp are due to release their results on Friday.

"We advise clients to reduce their investments in equities and other risky assets in both developed and emerging markets," said Komsorn Prakobphol, a senior investment strategist in Bangkok at Tisco Financial Group Pcl.

"We expect the equities to begin some correction in the second quarter after a strong rally so far this year. Oil prices are at a level that will probably see some correction."

COMMODITIES

The Bloomberg Commodity Index, a measure of returns on 22 raw materials, rose 0.1 per cent, extending this month's gain to 7.7 per cent. Oil is set for its best month in a year in New York, buoyed by data this week that showed US output is at the lowest level since October 2014.

Gold and silver both rallied for the fifth day in a row and were headed for their highest closes since January 2015. Copper advanced 0.7 per cent in London on Friday, while zinc and lead gained at least 1 per cent.

Soybean futures in Chicago are set for an 12 per cent increase this month, the most since October 2014, after heavy rains and flooding destroyed crops in South America.

Iron-ore futures on the Dalian Commodity Exchange have surged 20 per cent this month, the most since the contract started in 2013, and that's prompted the authorities to clamp down on excessive speculation.

BONDS

The Bloomberg US Treasury Index declined 0.3 per cent in April, set for the first monthly loss of 2016. The 10-year yield closed on Thursday at 1.82 per cent, five basis points higher than at the start of the month. Similar-maturity bonds in Japan yielded minus 0.085 per cent at the end of their final trading session in April.

BLOOMBERG