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Japan, Australia Stocks Sag Along With U.S. Dollar -- Update

24 Jul 2017 4:26 am
By Kenan Machado 

Asian shares were mostly lower Monday, with stocks in Japan and Australia underperforming notably as further 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 ended the week at its worst level since late September, according to the WSJ Dollar Index.

The metric was recently down 0.1% after the dollar earlier Monday hit a one-month low versus the yen and a fresh two-year intraday low against the euro.

Sentiment on the dollar will stay negative until there is a string of upbeat U.S. economic data along with a hawkish Federal Reserve and a dovish European Central Bank, said Kay Van-Petersen, a macro strategist at Saxo Bank in Singapore. The Fed 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 [is] 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.

Australian and Japanese shares led declines, with the S&P/ASX 200 down 0.9%, hitting a six-week intraday low, and the Nikkei Stock Average 0.8% lower.

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 fell for two of the previous three weeks.

Australia's big banks, which declined some 1.5%, also weighed on the market there. They collectively make up about one-quarter of the index.

Among the biggest stock decliners in Japan were export-reliant companies, as is often the case when the yen strengthens, since that eats into such firms' earnings. Meanwhile, fresh declines in bond yields hit insurers, which are heavy investors in fixed income. Dai-ichi Life and T&D Holdings slid more than 2%.

Beyond Japan and Australia, though, most indexes moved little from Friday's closing levels.

The Hang Seng Index was an exception. Hong Kong's benchmark index was recently up 0.4% after its nine-session winning streak ended Friday. Developer stocks gained, with Sunac China, Times Property and Yuzhou Properties hitting fresh record highs as Sunac's chairman said cash flow remained the firm's priority amid a Beijing-directed scrutiny.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

July 24, 2017 00:26 ET (04:26 GMT)

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