Asian markets rally, dollar dips as traders price in policy tightening

Asian markets rallied Friday following a healthy performance on Wall Street, with investors largely pricing in more interest rate hikes aimed at taming runaway inflation.

The more confident mood was reflected in a dip in the dollar, which has surged in recent weeks to multi-decade highs against its major peers owing to the Federal Reserve's hawkish tilt to tighter monetary policy.

The greenback's softness came even after Fed chief Jerome Powell reasserted the bank's determination to keep hiking rates to fight prices, even at the cost of economic growth.

His warning that "we need to act now forthrightly, strongly" followed comments from his deputy Lael Brainard, who said policymakers would lift borrowing costs for as long as it takes to bring inflation down from 40-year highs.

Still, Wall Street ended in positive territory, putting markets on course for a weekly gain and easing some pressure after hefty losses in August caused by worries that rising rates will spark a recession.

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"The markets have finally digested the fact that rates are almost certain to go up by 75 basis points when the Fed moves next (on September 21)," JoAnne Feeney, at Advisors Capital Management, told Bloomberg TV.

"What we are seeing though is some recognition that perhaps the sell-off that we saw in the second half of August was a bit overdone," she said.

New York's rise filtered through to Asia, where Hong Kong added more than two percent heading into a long weekend, while Tokyo, Sydney, Shanghai, Singapore, Wellington, Manila and Bangkok were all up.

OANDA's Edward Moya said traders cheered as "Powell stuck to his hawkish script and affirmed the commitment to tighten policy until inflation is back towards their target.

"Wall Street is expecting to see some pricing pressure relief with next week's inflation report, but that shouldn't derail the current 75 basis-point pace of tightening."

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There was also some cheer from news that inflation in China had eased slightly in August, giving the government more room to introduce more economy-supporting measures, though the recovery remains hostage to leaders' strict zero-Covid strategy of growth-sapping lockdowns.

On currency markets, the euro was holding well above parity with the dollar after the European Central Bank announced its own 75 basis-point rise as it warned inflation was "far too high" and likely to stay above target for "an extended period".

ECB chief Christine Lagarde suggested policy would continue to be tightened for some time.

The yen was also slightly stronger, having been in danger of hitting a 32-year low versus the greenback, with senior Japanese officials hinting at possible action to curb its losses if the unit fell further.

However, there is an expectation that it will see more losses as the Bank of Japan sticks rigidly to its ultra-loose policies despite the Fed's increasingly hawkish moves.

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Oil prices extended Thursday's gains though they remain pressured by ongoing worries about the impact on demand from possible recessions caused by the rate hikes and inflation.

Weakness in China's economy and lockdowns in major cities were also cause for concern among commodities traders.

Reports that President Joe Biden was considering releasing more crude from the US strategic reserves were also weighing on the market.

Washington is concerned that prices could spike in December when European Union sanctions on Russian supplies kick in.

Key figures at around 0320 GMT

Tokyo - Nikkei 225: UP 0.6 percent at 28,219.70 (break)

Hong Kong - Hang Seng Index: UP 2.2 percent at 19,269.43

Shanghai - Composite: UP 0.7 percent at 3,258.94

Euro/dollar: DOWN at $1.0070 from $1.0001 on Thursday

Pound/dollar: DOWN at $1.1568 from $1.1500

Euro/pound: UP at 87.07 pence from 86.93 pence

Dollar/yen: DOWN at 143.70 yen from 144.07 yen

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West Texas Intermediate: UP 0.4 percent at $83.91 per barrel

Brent North Sea crude: UP 0.7 percent at $89.73 per barrel

New York - Dow: UP 0.6 percent at 31,774.52 (close)

London - FTSE 100: UP 0.3 percent at 7,262.06 (close)

Source: AFP