Asia shares rise on rate cut bets; RBA seen turning hawkish

By Tom Westbrook

SINGAPORE (Reuters) -Asian shares made 15-month highs on Tuesday on renewed confidence of U.S. interest rate cuts, while a weaker yen and a small dip in the Australian dollar kept the dollar steady.

Australia’s central bank left interest rates on hold, as expected, but the dollar slipped about 0.4% and the Australian stock market rose as policymakers did not strengthen guidance around the risk of another rate hike.

In Hong Kong the was set to snap a 10-day winning streak with a 0.9% loss, though markets in Taiwan and South Korea were all higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.3%. rose 1.3%.

were up 1% pointing to a positive return from a market holiday. European futures rose 0.3% and were flat.

The mood was underpinned by last week’s softer-than-expected U.S. jobs data and remarks from Federal Reserve Chair Jerome Powell reiterating that the next move in rates will be lower.

“(Powell) said that he is confident policy is restrictive and that if progress on inflation stalled, the (Fed) would hold off on cutting, implying a high bar to hiking,” said Goldman Sachs economist David Mericle.

He also said, in a note to clients, that the U.S. hiring rate and other measures of employment growth intentions were soft and the weakest part of labour market data.

Treasuries, which rallied on Friday’s jobs figures, traded steady in New York overnight and 10-year yields held at 4.49% in Tokyo on Tuesday. Interest rates markets price at least one U.S. rate cut this year, in November.

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Demand will be tested at a $58 billion three-year note auction on Tuesday, which is followed by $42 billion in 10-year sales on Wednesday and $25 billion of 30-year sales on Thursday.

AUSSIE SLIPS

Expectations of falling rates have weighed on the dollar, though only gently. European policymakers are readying cuts for June, capping the euro, and rates are not expected to move too far above zero in Japan this year, leaving a wide gap with the rest of the world.

The dollar rose 0.6% on the yen on Monday and a further 0.5% to 154.60 yen on Tuesday, keeping markets on edge as to whether Japanese authorities may step in again.

Traders estimate Japan spent almost $60 billion defending the yen last week.

The Australian dollar slipped 0.4% to $0.6601 as the central bank stuck to “not ruling anything in or out” rather than explicitly spelling out rate hike risks in response to inflation proving stickier than its economists had forecast.

Sterling, at $1.2552, and the euro at $1.0765, slipped marginally.

In commodity trade, oil was a tad firmer, with futures up 0.3% to $83.58 a barrel with a ceasefire deal in the Middle East proving elusive. Gold rose overnight and was steady at $2,325 an ounce on Tuesday.

Wheat, corn and soybean traded around multi-month highs on worries about unfavourable weather in Russia – where it has been frosty and dry – and Brazil, where there are floods. [GRA/]

Iron ore futures have rallied on clues that China’s Politburo is planning more support measures for the beleaguered property sector. Benchmark June iron ore on the Singapore Exchange (OTC:) has risen almost 25% in a month. [IRONORE/]

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German factory orders are the highlight of the European calendar on Tuesday. UBS and Disney report earnings.

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