Asia Markets

Asia trades mixed after Reserve Bank of Australia leaves rates unchanged

Key Points
  • Asian markets were mixed, despite U.S. stocks closing at record highs
  • The Reserve Bank of Australia left its cash rate unchanged at 1.50 percent, which sent the Aussie dollar a touch lower
  • The U.S. dollar has strengthened against a basket of currencies

Asia markets traded mixed on Tuesday, despite U.S. equities closing at record highs overnight.

Japan's climbed 213.29 points, or 1.05 percent, to 20,614.07 and the Topix index rose 10.84 points, or 0.65 percent, to 1,684.46.

Hong Kong's resumed trading on Tuesday, after being shut on Monday. The HSI rose 2.3 percent to 28,193.98 in afternoon trade. Singapore's Straits Times index was down 0.52 percent, while India's Nifty 50 advanced 0.7 percent.

In Australia, the ASX 200 fell behind its regional peers to close down 27.88 points, or 0.49 percent, at 5,701.44.

The Australian dollar traded at $0.7811 in late afternoon, recovering from an earlier low of $0.7783. The moves in the Aussie followed the Reserve Bank of Australia's decision to leave its cash rate at a record low of 1.5 percent for the 14th month straight.

RBA Governor Philip Lowe said in a statement that the central bank expects economic growth Down Under to pick up in the future. He said, "The Australian economy expanded by 0.8 percent in the June quarter. This outcome and other recent data are consistent with the Bank's expectation that growth in the Australian economy will gradually pick up over the coming year."

He also said that, in recent months, there have been "more consistent signs that non-mining business investment is picking up" and that a "large pipeline of infrastructure investment" is also supporting the country's economic outlook. On the other hand, Lowe said slow growth in real wages and high levels of household debt are likely to "constrain growth in household spending."

The governor added that the Aussie dollar had appreciated against the greenback since mid year, and that the higher exchange rate is "weighing on the outlook for output and employment."

"Basically the RBA and official interest rates remain stuck between a rock and a hard place," said Shane Oliver, head of investment strategy and chief economist at AMP Capital, in an afternoon note.

"Improving global growth, strong business confidence and jobs growth, the RBA's own expectations for a growth pick up and already high levels of household debt argue against a rate cut," said Oliver. "But record low wages growth, low underlying inflation, the impending slowdown in housing construction, risks around the consumer and the strong [Aussie dollar] argue against a rate hike."

Major Australian banking stocks fell, with ANZ shares down 0.1 percent, Commonwealth Bank down 1.55 percent, Westpac off by 0.37 percent and the National Australia Bank declining 0.69 percent. Resources producers were mixed, but major miners Rio Tinto and Fortescue gained 0.72 and 0.57 percent, respectively.

Markets in South Korea and China remain closed due to public holidays.

In the currency market, the , which measures the greenback against a basket of currencies, traded at 93.676, rising from levels below 92.500 in the prior week.

"Dollar dominance was not a one-sided story," Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note. He suggested that events unfolding in Catalonia, emerging risks from the euro zone, Brexit "woes" and snap election uncertainties in Japan could have contributed to the dollar strength against major currencies.

Varathan also said on Monday that the dollar rally is likely due to a "short dollar positioning squeeze instead of a real turn."

Among other currency majors, the Japanese yen traded at 113.10 per dollar, weakening from an earlier high of 112.63. The euro traded at $1.1733, strengthening from an earlier low of $1.1694.

Elsewhere, oil prices slipped Tuesday afternoon Asia time. U.S. crude was down 0.1 percent at $50.53 a barrel, while global benchmark Brent fell 0.09 percent to $56.07.

"The unwind in long crude positioning continued overnight," Jeffrey Halley, senior market analyst at OANDA, said in a note. He added that separate surveys pointing to a "higher than expected OPEC production in September was enough to see the rot set in."

Halley added, however, that "extended speculative long positioning in both contracts" was the real culprit behind the drop in oil prices in the previous session.