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Asia: Equities rally, dollar extends losses on Federal Reserve rate cut bets

[HONG KONG] Asian markets rallied on Thursday and the dollar suffered further across-the-board losses after the head of the Federal Reserve all but guaranteed an interest rate cut this month.

In the first day of closely watched congressional testimony, Jerome Powell said the case for lower borrowing costs "had strengthened" owing to headwinds caused by global trade uncertainty.

The comments sparked much-needed relief on trading floors around the world, having suffered steep losses at the start of the week in reaction to a blockbuster US jobs report that dented hopes for a steep Fed cut at its next policy meeting.

US equities surged, with the Nasdaq ending at a record high and the greenback going into retreat, and the trend continued into Asia.

Hong Kong jumped more than one per cent and Shanghai added 0.6 per cent, while Tokyo ended the morning session 0.4 per cent higher.

Seoul was up 1.2 per cent, Sydney rose 0.2 per cent, Singapore climbed 0.8 per cent and Taipei put on 0.4 per cent.

Manila, Wellington and Jakarta also shifted into positive territory.

"One of the principal drivers of soaring stock market valuation is the thought that easy monetary policy will bolster the US economy, which isn't struggling, and spur on an even more scintillating stock market rally for the remainder of 2019," said Stephen Innes at Vanguard Markets.


While the direction of rates is expected to be downward this year, there are conflicting opinions on how deep July's cut will be and how many more there will be this year.

Oanda senior market analyst Alfonso Esparza said: "A July rate cut is fully priced in but a stronger-than-forecast (jobs) report in June put a question mark on how many more cuts the Fed needs to make.

"The trade war with China is a major factor and if there is an agreement in the short term the central bank could leave it at one and done for the year."

Traders are now looking forward to Mr Powell's second day on Capitol Hill as well as the release of inflation data, with observers saying a weak reading could revive hopes for a big July reduction.

The dollar continued to struggle, with the pound, euro and yen all building on Wednesday's gains, while high-yielding, riskier units were also well up with South Korea's won 0.8 per cent higher, South Africa's ran 1.6 per cent up and the Australian dollar jumping 0.7 per cent.

Oil prices edged up to extend the previous day's surge that came on the back of data showing a bigger-than-expected plunge in US oil inventories as well as a brewing storm in the Gulf of Mexico that could hit production.

WTI jumped 4.5 per cent, while Brent surged more than five per cent Wednesday, while a CNN report that the armed Iranian boats tried to seize a British tanker in the Strait of Hormuz reinforced geopolitical concerns.

The weak dollar also sent the price of gold rallying two percent to sit around US$1,420.