The dollar continued to brush aside other currencies Thursday after further proof of the booming US economy sent Treasury yields surging, but Asian equities sank with more Federal Reserve rate hikes looking certain.
A forecast-busting private jobs report, a surge in activity in the services sector and optimism in the retail market were the latest evidence that the world’s top economy is firing on all cylinders, helping send the Dow to a record close for the second day in a row.
However, the news also saw a sell-off in safe-haven Treasuries — a sign of confidence — sending the cost of borrowing to its highest level in seven years, in turn fuelling a surge in the dollar, helping it hit an 11-month high against the yen.
Hawkish comments from Fed boss Jerome Powell also provided momentum to dollar buying.
The greenback extended Wednesday’s gains against its major peers, with easing concerns about a row between Italy and EU leaders unable to staunch a sell-off in the euro.
Higher-yielding and emerging market currencies were among the worst hit.
The Chinese yuan took a hit, despite mainland markets being closed. The dollar jumped 0.2 percent to 6.9 against the offshore yuan, with some predicting it could break 7 at some point.
The US unit hit a record 73.82 Indian rupees and a fresh 20-year high against the Indonesian rupiah, with the two countries battered by surging oil prices and an outflow of cash as investors shift attention to US assets.
It was two percent higher against the South African rand, 1.5 percent up on the Mexican peso and one percent higher against the Australian dollar and South Korean won.
The New Zealand dollar and Thai baht were also sharply lower.
The prospect of borrowing becoming even more expensive rattled equity traders in Asia.
Hong Kong lost 1.8 percent with property firms hit by concerns the higher rates — the city’s monetary policy is linked to the Fed’s — will hammer the booming real estate market.
Tokyo ended 0.6 percent lower, while Singapore, Seoul, Manila, Taipei and Jakarta shed more than one percent. Mumbai was down 2.3 percent.
Sydney added 0.5 percent while Shanghai was closed for a public holiday.
“This withdrawal of liquidity and gradual tightening of monetary policy” by the Fed is reverberating across financial markets, Bob Baur, chief global economist at Principal Global Investors, told Bloomberg TV. He warned US Treasuries would likely rise further “later this year, early next year — and I think that’s going to be a real problem for stock markets.”
However, Stephen Innes, head of Asia-Pacific trading at OANDA was more upbeat about the outlook.
“With positive signs gradually showing up for Shanghai and the Nikkei, Asia equities, while still pulling up the rear, should make leaps and bounds this quarter, even more if the US and China resolve their trade issues.”
He added that the central People’s Bank of China had a big enough war chest to support the economy.
“It will take some patience, but three months down the road we should start to see a shift higher in mainland economic data after the PBoC stimulus efforts,” he said.
On oil markets both main contracts edged down after serving up yet another sharp rise on Wednesday on the back of comments from US Secretary of State Mike Pompeo and White House National Security Advisor John Bolton regarding Iran that exacerbated worries about a supply hit from the region.
With US sanctions on Tehran due to be implemented early next month there are worries about narrowing supplies, while upheaval in Venezuela and the strong dollar have also helped the rally.
In early European trade London fell 0.3 percent, Paris lost 0.4 percent and Frankfurt eased 0.1 percent.
– Key figures around 0720 GMT –
Tokyo – Nikkei 225: DOWN 0.6 percent at 23,975.62 (close)
Hong Kong – Hang Seng: DOWN 1.8 percent at 26,597.45
Shanghai – Composite: Closed for a public holiday
London – FTSE 100: DOWN 0.3 percent at 7,490.21
Euro/dollar: DOWN at $1.1486 from $1.1505 at 2100 GMT
Pound/dollar: DOWN at $1.2950 from $1.2966
Dollar/yen: UP at 114.85 from 114.46 yen
Oil – West Texas Intermediate: DOWN 29 cents at $76.12 per barrel
Oil – Brent Crude: DOWN 33 cents at $85.96 per barrel
New York – Dow Jones: UP 0.2 percent at 26,828.39 (close)