US dollar rally batters commodities and Asian shares as Fed talks of tightening, STI down 0.5%

A customer counts US dollar notes in a bank in Cairo, Egypt, on March 10, 2016.
A customer counts US dollar notes in a bank in Cairo, Egypt, on March 10, 2016. PHOTO: REUTERS

SYDNEY (REUTERS) - The US dollar rose for a fifth straight session on Thursday (March 24), pressuring commodities and Asian share markets after yet another Federal Reserve official talked up the chances of more than one increase in USinterest rates this year.

If the dollar can keep its footing it will notch up the first weekly gain in a month against a basket of major currencies.

The euro eased to US$1.1175, leaving it well off last week's top of US$1.1342. Sterling also slid to US$1.4109 on concerns the attacks in Brussels would aid the campaign to leave the European Union in June's "Brexit" vote.

Equity investors tend to dislike any hint of tighter US policy and MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.4 per cent.

Japan's Nikkei eased 0.4 per cent, while the resource-heavy Australian market shed 1 per cent.

Sngapore's Straits Times ndex was dow 0.47 per cent at 2,868.43 as of 9:14 am.

On Wall Street the Dow ended Wednesday with a loss of 0.45 per cent, while the S&P 500 eased 0.64 per cent and the Nasdaq 1.1 per cent.

St Louis Fed President James Bullard joined a chorus of officials in highlighting the risk of at least two rate hikes this year, with the first perhaps as soon as April.

Markets imply only one increase and dealers suspect an orchestrated attempt by the Fed to shift that thinking. There is now some speculation on April, as Mr Bullard adds to the relatively optimistic Fed rhetoric this week.

The focus now turns to Fed Chair Yellen who will be speaking at the Economic Club of New York next Tuesday, which could give further clarity on the matter.

Yet for all the Fed's chatter about multiple hikes, the bond market seemed far from convinced. Fed fund futures imply almost zero chance of a move in April and a rate of just 61.5 basis points by year end. The current effective funds rate is 37 basis points.

It was also notable that Treasury yields actually fell in response, with the 10-year back down at 1.88 per cent from a high of 1.95 per cent on Wednesday.

Still, the rise in the dollar sparked profit-taking in a range of commodities from oil to gold to copper.

Oil took a further knock when data showed crude stockpiles had risen by three times the amount expected in the latest week. US crude fell a further 22 cents to US$39.57 a barrel, after sliding 4 per cent on Wednesday. Brent lost 12 cents to US$40.35.

Gold was down at US$1,222.60 an ounce, after hitting its lowest since Feb 26 at US$1,215.10.