By Kenan Machado
Asian shares began the trading week modestly lower, with stocks in Japan and Australia badly underperforming Monday as additional declines in the U.S. dollar continued to weigh on investor sentiment.
A fresh pullback in commodity prices also hurt equities, despite the weaker dollar. Many assets in the sector are denominated in the dollar and often rise when the currency falls.
Concern about policy direction from the White House and Capitol Hill since the failure to repeal the Affordable Care Act and investigations into contacts with Russians before November’s election have helped fuel dollar selling. The currency /zigman2/quotes/210598269/delayed DXY -0.53% ended the week at its worst level since late September, according to the WSJ Dollar Index.
Amid declines in U.S. trading on Friday and fresh selling Monday morning in Asia— the dollar hit a one-month low versus the yen and a two-year intraday low versus the euro — stock benchmarks in Australia and Japan closed lower by 0.6% each.
That comes as the Federal Reserve is scheduled to meet this week. Vishnu Varathan, a senior analyst at Mizuho Bank in Singapore, predicts there will be some commentary “that weak inflation are not entirely due to transitioning factors.” Such a comment could stoke worries that the central bank may slow the pace of rate increases, a dollar negative.
Among the biggest stock decliners in Japan were export-reliant companies, as is often the case when the yen strengthens, as that eats into such firms’ earnings. Meanwhile, fresh declines in bond yields hit insurers, which are heavy investors in fixed income. Dai-ichi Life /zigman2/quotes/208507587/delayed JP:8750 +0.89% and T&D Holdings /zigman2/quotes/208425761/delayed JP:8795 +0.41% each dropped 1.7%.
Weaker commodity prices, notably in iron ore after its recent gains, pushed down Australian stocks, said Gary Huxtable, a senior adviser at ASR Wealth Advisers in Melbourne. Equities there have been underperforming for several months, and the S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO -0.33% fell for two of the previous three weeks.
Beyond Japan and Australia, though, index moves were muted to start Monday. Most other benchmarks were within 0.2% of Friday’s finishes, though after a quiet start buying returned to Hong Kong stocks. The Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI -1.09% rose 0.5% after its nine-session winning streak ended Friday.
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