Asian stocks dip, dollar recovery continues as yields rise

Stock markets dipped after a long winning run on Wall Street ended overnight, while the dollar gained momentum on Wednesday as yields on US Treasury debt headed for highs not seen in four years.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.15 per cent. Japan's Nikkei shed 0.2 per cent. Australian stocks were down 0.05 per cent and South Korea's KOSPI fell 0.4 per cent. The Dow and S&P 500 fell on Tuesday to snap a six-session winning streak as a sharp decline in Walmart weighed heavily. Gains in Amazon and chip stocks helped the Nasdaq hold near the unchanged mark.

US equities pulled back sharply from record highs earlier this month as a steady rise in Treasury yields raised worries that the Federal Reserve could hike interest rates more frequently this year than initially expected.

Treasury yields rose overnight with the benchmark 10-year yield crawling back to near a four-year peak as investors made room for this week's $258 billion deluge of new government debt. They have risen in the wake of increased government borrowing. The US Treasury Department has issued more debt in anticipation of a higher deficit from last year's major tax overhaul and a budget deal that will increase federal spending over the next two years.

The dollar benefited from the higher yields, with its index against a basket of six major currencies rising to a one-week high of 89.802. The index has bounced 0.7 per cent so far this week after slumping 1.5 per cent the previous week to a three-year low.

The US currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy.

Confidence in the dollar has also been shaken by mounting worries over the US budget deficit. But the greenback managed to find bids once the dust began to settle after last week's tumble. “We are seeing the dollar being bought back after last week's slide. The steady US economy and the possibility of the Fed accelerating its rate increases will likely keep fuelling the dollar's rebound, particularly against the euro and yen," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The dollar was steady at 107.365 yen after gaining 0.7 per cent overnight. The euro was 0.05 per cent lower at $1.2331 following losses of 0.55 per cent the previous day. The Australian dollar was flat at $0.7877 and the New Zealand dollar dipped 0.1 per cent to $0.7340.

The stronger dollar weighed on commodities, with US crude oil futures slipping 0.25 per cent to $61.63 per barrel. US crude hit a near two-week high the previous day on news of inventory declines at a key storage hub and from expectations that top OPEC producers could extend cooperation beyond 2018.

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