Dollar dips as Dubai fears fade, Asian markets flat

Dollar dips as Dubai fears fade, Asian markets flat

Hong Kong: The dollar slipped on Tuesday as fears about the ripple effects of Dubai’s debt woes eased while Asian shares were steady as investors took a breather after Monday’s bounce.

The dollar dipped 0.2% against a basket of major currencies in early trade, reflecting cautious optimism that Dubai’s problems with repaying debt would be contained, making it less pressing for investors to seek a safe haven. It later crept up and held steady after the Bank of Japan announced it will hold an emergency meeting.

Asian share markets were also steady after bouncing back on Monday.

In Australia, shares were flat, and the Australian dollar was steady, ahead of an interest rate decision. Investors were torn over whether to expect a 25 basis point rate rise or whether the slide in global equity markets late last week triggered by the Dubai scare would prompt the Reserve Bank of Australia to keep rates unchanged.

Dubai World, the holding company at the heart of the Dubai crisis, on Monday announced a restructuring plan involving $26 billion in debt. However, there was lingering concern among global investors after the Dubai government said it was not responsible for Dubai World’s debts, dealing a blow to creditors’ assumptions that the Arab emirate would guarantee the government-controlled conglomerate’s liabilities.

“Dubai is still a risk but most of Asia has very limited exposure to Dubai other than isolated banks. So people may want to avoid the banks but most other companies are okay," said Francis Cheung, an equities strategist at CLSA in Hong Kong.

Singapore’s DBS Group, Southeast Asia’s top lender, announced that it had $1.28 billion exposure to Dubai but its shares were up 0.6%, in line with the market.

The MSCI index of Asia Pacific stocks traded outside Japan was up 0.3% while the Thomson Reuters index of regional shares was down 0.6%.

BOJ Meeting

Asian markets were encouraged by gains on Wall Street where the Dow Jones edged up 0.3% and there was good news after the closing bell as quarterly profits from retailer Guess Inc beat expectations and forecast holiday season earnings would exceed Wall Street estimates.

However, analysts said there was little news to drive Asian stocks higher after they bounced back on Monday.

Japan’s Nikkei index was down 1% as profit taking emerged after the market jumped nearly 3% on Monday.

Japanese government bond futures hit a 10-month high after finance minister Hirohisa Fujii boosted expectations for further monetary easing by the Bank of Japan as the yen’s recent march to a 14-year high against the dollar has raised the risk of deepening deflation.

As the Bank of Japan was due to hold a special policy meeting, the yen dipped against the dollar.

“Investors are finding it hard to buy the yen further as the tone of remarks from Japanese authorities has changed recently," said Kazuyuki Takami, senior manager of foreign exchange trading at Bank of Tokyo-Mitsubishi UFJ in Tokyo.

Japanese officials have sounded increasingly worried about the yen’s strength, which will hurt exporters and potentially aggravate deflation.

Economic data out of Asia, including China purchasing managers’ indexes and a near 20% rebound in South Korean exports last month, indicated regional recovery was under way but had largely been factored into share prices.

Shares in Australian carrier Qantas however jumped 3.5% after the airline announced a 7% rise in October passenger numbers.

The oil price was steady at $77.30 a barrel after climbing 1.6% on Monday on news that Iran had restructured its naval forces for operations in the event of a conflict and had detained five Britons after their yacht strayed into Iranian waters.

Gold dipped slightly to $1,178.45 an ounce, but was not far off its New York close at $1,179.10.