Asian shares dip but on track for weekly gain

The New Zealand dollar fell in the lead-up to the Federal Reserve’s policy meeting which is expected to deliver its first interest rate rise in nearly a decade.

With a hike seen as a mostly done deal after more than a year of anticipation, investor focus is fixed on how the Fed might opt to pace its tightening cycle next year. This implies four quarter-point rate hikes next year.

It was the first rate hike in the USA since 2006.

In South Korea, the Kospi index was up 0.25% at 1,974.1.

The euro dropped to US$1.0860, having fallen as low as US$1.0832 from US$1.1000 in the wake of the Fed’s statement. “A lot of capital will be looking for a temporary home outside of the United States so as to avoid the likely increase in volatility after the (fed rate hike) hammer falls”, said Martin King, co-managing director at Tyton Capital Advisors. It advanced 0.5 percent 67.62 US cents per New Zealand dollar and 0.4 percent to 72.07 cents against Australia’s currency.

“It may be that the Fed, making a start on normalisation – perhaps this will change – I don’t know – but thus far there has been considerable demand for those assets on the part of quite a range of foreign investors”, he said in a newspaper interview earlier in the week. However, the Swiss unit retains its allure as a safe-haven, so if tonight’s session does indeed bring news of a tightening of policy from the U.S., then expect the Franc to enjoy sustained support against the other major currencies.

Japan’s Nikkei added 1.9 per cent, on top of Tuesday’s 2.6 percent advance.

“As U.S. liquidity growth continues to slow, those emerging market countries and corporations that are reliant on U.S. dollar capital inflows for funding that have not undertaken the necessary structural reforms will be unable to continue to finance themselves, let alone repay the considerable amounts of U.S. dollar debt that they have accumulated post-financial crisis”, said Atul Lele, chief investment officer at Deltec International Group.

Wright says “the potential for normalization of USA monetary policy should definitely be seen as a headwind for Chinese attempts to ease monetary conditions”.

“The Fed is more hawkish than the market has been on where interest rates will be at the end of 2016”, said Chris Gaffney, president of EverBank World Markets in St Louis.

In a press conference after the rate hike announcement, Federal Reserve governor Janet Yellen said that future rate increases “would not be mechanical.” that there would be no link to specific data, including that of inflation which is still well below the Fed’s target of about 2 percent at 0.5 percent.

“What concerns me is we’ve spent all year debating when the Fed is going to move”.

Within Asia, Japan may have the most to gain from the Fed’s shift, since higher USA interest rates are likely to push the dollar up against the yen, helping Japan’s exports.

Copper lost 1.4 per cent and is down almost 28 per cent for the year so far. The financial world’s worst-kept secret is that the Federal Reserve is all but sure to raise interest rates from record lows, on Wednesday, Dec. 16, 2015.

Moves in short-term US Treasuries were modest, after touching 1.021 per cent on Wednesday, a 5-1/2 year high, yields on two-year notes were last at 0.9966 per cent. However, yields on the benchmark 10-year Treasury notes fell to 2.2322 per cent, up 16/32 in price as investors turned their attention to timing of the next rise.