SINGAPORE: Asian stock markets and the dollar took a breather on Wednesday ahead of an anticipated rate cut in Canada and a U.S. inflation reading expected to leave the Fed on course to cut rates again.
Investors were a touch cautious because, with an 85% chance of a U.S. rate cut next week priced in and with Wall Street indexes around record highs, there is room for disappointment.
The S&P 500 had dipped 0.3% on Tuesday though it was just 65 points, or a little short of 1% shy of its all-time high.
U.S. futures rose 0.1% in the Asia session. European futures fell 0.2% and FTSE futures fell 0.4%. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4% and Japan's Nikkei was flat.
The median forecast of economists polled by Reuters is for headline and core U.S. consumer prices increasing 0.3% month on month, for November. No forecasts were above 0.3%, which analysts say leaves markets vulnerable to a surprise.
"The 0.4% case is a barnburner," said trader and president at analytics firm Spectra Markets, Brent Donnelly.
"The trade is to buy USD and sell stocks on 0.4% and do nothing otherwise." The dollar is likely to rise if markets pare back the speed and depth of expected U.S. rate cuts.
Analysts at the Commonwealth Bank of Australia think the dollar index will probably drift lower towards 105.1 if inflation meets expectations, but could shoot up towards 108.1 if core inflation comes in at 0.4% or higher.
The index was last at 106.4.
U.S. yields had ticked marginally higher and benchmark 10-year yields were steady in Asia at 4.240%.
CUTS AHEAD
The Canadian dollar touched a 4-1/2 year low on Tuesday and, at C$1.4165 per dollar, was close by on Wednesday as traders saw an 89% chance of a super-sized 50 basis point rate cut later on Wednesday.
Canada has already reduced rates by 125 basis points (bps) this cycle but news last week that the jobless rate spiked to an eight-year high of 6.8% in November has driven bets on an extra 50 bps of cuts, which would bring the overnight rate to 3.25%.
Broader foreign exchange markets were steady, with the euro at $1.0524 and the yen at 151.73 per dollar.
Markets have fully priced a European Central Bank rate cut on Thursday and a 61% chance of a 50 bps cut from the Swiss National Bank, which would help cool a rally in the franc.
On Tuesday, Australia's central bank left rates on hold, as expected, but dropped a veiled reference to the possibility of a future rate hike and sent the Aussie dollar down sharply.
The Aussie was nursing a 1% drop from the previous session at $0.6372 on Wednesday, while the kiwi had also suffered a kicking and bought $0.5792.
Gold was above its 200-day moving average at $2,688 an ounce. China's resumption of gold buying for reserves seems to have helped spot prices break a recent range.
In other commodity markets, a fillip from China's big policy shift this week seemed to lend support to oil prices, with Brent crude futures up 47 cents to $72.65 a barrel.
Arabica coffee prices hit a record just above $3.48 a pound on Tuesday as dealers worry a drought is going to cut output for top producer Brazil. - Reuters
