US dollar firms on Fed rate hike talk, eyes on Trump

[HONG KONG] The dollar firmed in Asia on Wednesday after two top Federal Reserve officials suggested US interest rates could rise as soon as this month, while traders await a key speech by Donald Trump to Congress.

The greenback's rally provided fresh impetus for Tokyo stocks, but regional equity markets were subdued despite forecast-beating readings on Chinese factory activity and Australian growth.

Early focus is on Washington, where President Trump is due to address both houses of Congress, with investors hoping he will provide details of his economic plans.

World markets have surged since his November election win on expectations his plans for infrastructure spending and tax cuts will fire the world's top economy.

However, his lack of clarity has led to some uncertainty, while there are also concerns that his first few weeks in office have been enveloped with controversy that has caused division in the country.

"Some believe it's a chance to reset, some hope for inclusiveness, but traders just hope for an expansion and clarification of the plans and timing around the administration's tax and infrastructure plan," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

In early exchanges the Nikkei in Tokyo was up 0.9 per cent as the dollar strengthened against the yen, helping exporters.

Investors shifted into the US unit after New York Fed President William Dudley said there was a strong case for borrowing costs to rise, while his San Francisco counterpart John Williams expects such a move to get "serious consideration" when the bank meets this month. The comments come as Fed boss Janet Yellen prepares to speak Friday.

However, other markets were reticent to move before Mr Trump's speech, with Hong Kong, Shanghai, Taipei and Wellington all flat.

There was little early reaction to Chinese figures showing manufacturing activity grew more than expected last month.

The improvement in the purchasing managers index follows a series of upbeat readings from Beijing that suggest the world's number two economy may have turned a corner after years of slowing growth.

Sydney was down 0.1 per cent as traders brushed off news Australian growth hit 1.1 per cent in the October-December quarter, averting a technical recession of two straight quarters of contraction, thanks to a pick-up in exports and household spending.

AFP