The dollar hit a one-month high against a basket of currencies on Wednesday while Asian shares fell, hit by worries that the days of easy money from the US Federal Reserve are numbered.
Asian shares extended their losses after a survey showed that growth in China’s services sector sagged to its weakest pace in nine months in June, adding to signs of a slowdown in the world’s second-largest economy.
Hong Kong shares extended losses with Chinese material and banking counters coming under selling pressure as losses accelerated after the China services data and a consumer sector survey remained modest in June.
In late morning trade, the Hang Seng Index was down 2.1 per cent at 20,233.7 points, while the China Enterprises Index of the top Chinese listings in Hong Kong dived 3 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.9 per cent, pulling away from a near two-week high set on Tuesday.
Regional shares fell broadly, with Australian equities down 2.3 per cent, South Korean stocks down 1.3 per cent and Shanghai shares down 1.8 per cent.
The Australian dollar plumbed a fresh three-year low against the greenback on Wednesday, sliding to $0.9096 as selling accelerated after it broke below Monday’s low of $0.9110.
The Aussie was last down 0.4 per cent on the day at $0.9108, after Reserve Bank of Australia Governor Glenn Stevens said the bank stood ready to help support an economy that faced sub-par economic growth as the mining investment boom peaked.
Equity investors were quick to take profits in recent gains following a soggy finish on Wall Street. Some positioning ahead of the US Independence Day holiday on Thursday and key US jobs report on Friday were also cited for the market’s cautious stance.
“There is little upside momentum in the market right now. There is little that foreign investors could be cheerful about,” said Lee Kyoung-soo, a market analyst at Shinyoung Securities.
Japan’s benchmark Nikkei share average hit a five-week high earlier on Wednesday as the yen slipped to a one-month low versus the dollar. The gains in Tokyo shares were short-lived, however, with the Nikkei last down 0.6 per cent.
“Although a weak yen surely has positive effects on Japanese stocks, particularly on exporters, the upside can be limited by some profit-taking which is quite normal after recent sharp gains,” said Toshiyuki Kanayama, senior market analyst at Monex Inc.
The yen’s fall to a one-month low occurred against a recent backdrop of broad dollar strength.
The dollar index, which measures the greenback’s value against a basket of major currencies, rose to as high as 83.622 earlier on Wednesday, its highest level since late May.
The dollar gained a lift after data showed that US new motor vehicle sales in June were poised to record their strongest month in more than 5-1/2 years, while factories posted a second straight month of gains in new orders in May.
Normally these numbers should bolster risk appetite and equities, but investors at this stage appeared to be more worried that the Fed will keep to its mantra of gradually withdrawing stimulus as the economic recovery continues.
Markets were largely unmoved by comments from Fed officials, who again sought to play down fears of any imminent policy tightening.
Fed Board Governor Jerome Powell said the easy monetary policy will likely be warranted for “quite some time”.
William Dudley, head of the powerful New York Fed, went further to say he would not rule out raising the pace of asset purchases from the current US$85 billion per month. But he said the central bank would need to see the recovery stumble badly before any such move.
In commodities markets, oil prices surged as turmoil in the Middle East unsettled investors. US crude futures rose 2.3 per cent to $101.88 and hit a 14-month high earlier on Wednesday.
Libyan oil output has fallen by a third after protesters shut several oilfields and anti-government demonstrations in Egypt have raised concerns about the stability of the whole region.