Asian shares rose on Monday after a solid session on Wall Street, while the dollar held near recent highs against major rivals as investors bet that the U.S. Federal Reserve was on track to raise rates sooner rather than later.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 percent, after Wall Street rallied on Friday, shrugging off growing expectations of tighter monetary policy.
Japan’s Nikkei stock index slipped 0.5 percent.
Data released before the open showed Japan’s exports skidded 10.1 percent in April from a year earlier, in line with expectations and down for a seventh straight month, reflecting sluggish demand from China and emerging markets.
Markets have started to entertain the prospect of a near term U.S. rate hike after last week’s release of Fed meeting minutes showed that policymakers weren’t shying away from raising interest rates as early as next month.
The probability for a June rate hike rose from around 4 percent at the start of the week to 30 percent on Friday, according to CME Group’s FedWatch site. Futures markets are predicting two rate increases this year as opposed to just one as recently as last week.
Federal Reserve Chair Janet Yellen will appear at a panel event hosted by Harvard University on Friday. Fed branch presidents including those from San Francisco, St. Louis, Dallas, Minneapolis are also slated to speak earlier in the week.
“Fed futures price a full hike through December now, but the risk premium out the curve in the 2yr-5yr sector is still low,” wrote Andrew Sheets, chief cross-asset strategist at Morgan Stanley.
“Yellen’s two speeches on May 27 and June 6 ahead of the June FOMC become critical in shaping that risk premium. A reiteration of the hawkish minutes will likely lead to front-end steepening and push USD higher,” he said.
On the U.S. data front, home resales rose more than expected in April, suggesting the economy continues to gather pace during the second quarter.
The dollar index, which tracks the greenback against a basket of six rival currencies, was steady at 95.333 after gaining 0.8 percent last week. It stood within sight of Thursday’s high of 95.520, its strongest since March 29.
The euro was slightly lower at $1.1222, not far above its Thursday low of $1.1180, its weakest since March 29.
The dollar slipped about 0.2 percent to 110.03 yen, but was still not far from its three-week peak of 110.59 yen scaled on Friday.
Against this backdrop, the United States issued a fresh warning to Japan against intervening in currency markets at the weekend Group of 7 financial leaders’ meeting in Japan.
The higher dollar weighed on crude oil prices, which nonetheless managed to log a second week of gains despite posting losses for the day on Friday.
U.S. crude fell 0.5 percent to $48.14 a barrel in early Asian trade, while Brent shed 0.4 percent to $48.52.