“Assessing the Impact of a Potential RBA Interest Rate Hike in Australia on Asian Markets”

By Jamie McGeever

(Reuters) – A look ahead for the day ahead in Asian markets by Jamie McGeever.

Asian stocks came off their worst day since June on Tuesday and hoped for a rebound, but are vulnerable to an expected rate hike in Australia, possible critical comments from Fed Chair Jerome Powell and rising US-China tensions.

Another Wall Street close in the red on Monday also won’t greatly increase the likelihood of a rebound as US markets are pricing in a ‘longer higher’ Fed this year.

The selection of Asian economic data and calendar of events will be the Reserve Bank of Australia’s interest rate decision and subsequent guidance for policymakers.

The RBA is expected to hike interest rates by a quarter point to 3.35% for the fourth consecutive month after inflation unexpectedly rose to a 33-year high of 7.8% last year.

However, Monday’s figures showed retail sales falling for the first time in a year, a sign that higher interest rates may be starting to bite.

In Japan, meanwhile, speculation about the next governor of the Bank of Japan is intensifying. According to the Nikkei newspaper, Japan’s government has identified BOJ Deputy Governor Masayoshi Amamiya to succeed Haruhiko Kuroda.

Many analysts see him as a pragmatic politician who prefers to tiptoe toward an exit from the BOJ’s ultra-loose monetary policy rather than make sudden changes to a stimulus plan he helped shape.

And the yen is on the slide. It fell 1% on Monday and is down 3% since Friday, the biggest two-day drop in three years.

Yen vs. Dollar 2-Day Exchange: https://tmsnrt.rs/3jEdowD

In general, Asian markets are feeling the heat from the sudden shift in the US interest rate outlook after Friday’s incredibly strong US jobs report for January.

The June Fed “end” implied rate is now well above 5.00%, the year-end implied rate is higher than the current Fed Funds range, markets are now pricing in just 20 basis points of easing this year and the two-year yield is in up around 40 basis points.

This could be the tightening of financial conditions that Fed Chair Powell and his colleagues are aiming for. Or it may be irrational and unwarranted market swings in response to a data point that will prompt a response from Powell when he speaks at the Economic Club of Washington on Tuesday.

The MSCI Asia ex-Japan index fell 2.4% on Monday, its worst day since June last year, Chinese stocks had their worst day this year (also on tensions between Beijing and Washington) and Hong Kong tech stocks fell by 3.6%.

Here are three key developments that could give markets more direction on Tuesday:

– Fed Chair Powell speaks (Economic Club of Washington)

– Interest rate decision in Australia

– Chinese foreign exchange reserves (January)

(By Jamie McGeever; Editing by Josie Kao)

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