Asian shares stepped back while the Japanese yen held onto overnight gains in early trading on Friday as financial markets turned their attention to the looming US payrolls data for fresh catalysts.
Investors were cautious after a largely weak performance on Wall Street overnight as some disappointing earnings reports offset strong economic data, while bond yields slid after a surprising slowdown in euro zone inflation.
The US dollar weakened during what was a choppy session a day after the Federal Reserve ended a policy meeting with no change in rates and a less hawkish statement than investors had anticipated. Disappointing US company earnings, upbeat data on factory orders and the US trade balance as well as the underwhelming eurozone inflation data made for a challenging trading environment.
“Macro data from the US and Europe are struggling to meet lofty expectations,” analysts at ANZ said in a note.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.26 per cent, while the dollar dropped 0.2 per cent against the yen to 108.98 JPY=.
Indonesian stocks .JKSE led the declines, falling as much as 1.5 per cent in early trading before recouping some of those losses.
“The price action since the FOMC statement indicates a real division of opinion in markets over the US dollar outlook,” said Sean Callow, a strategist at Westpac.
The Fed's reminder that its inflation target was symmetric was a clear negative for Treasury yields, and so the US currency's recovery was encouraging for dollar bulls, Callow said. Yet the dollar had failed to breach key levels such as 110 versus the yen, $1.20 against the euro and $0.75 versus the Australian dollar AUD=, he said.
“A 13-month low in eurozone inflation should have been a big boost for the dollar index - it was not. The payrolls report may not resolve this market battle.”
The US dollar had erased all its 2018 losses in the past two weeks on expectations the Fed will continue to raise rates, even as other major central banks around the world, including the European Central Bank, take longer to reduce stimulus.
The focus for markets will be on the US jobs data due later in the global day, with the April report likely to underscore labour market strength. Non-farm payrolls probably increased by 192,000 jobs last month, according to a Reuters survey of economists, after rising only 103,000 in March.
Investors were also keeping a close watch on US-China trade talks, though analysts said they had little confidence that the US delegation in Beijing, led by Treasury Secretary Steven Mnuchin, will achieve any breakthrough on the tariff standoff between the world’s two biggest economies.
The yield on benchmark 10-year Treasury notes US10YT=RR rose to 2.9477 per cent compared with its US close of 2.946 per cent on Thursday. The two-year yield US2YT=RR, which rises with traders’ expectations of higher Fed fund rates, touched 2.4802 per cent compared with a US close of 2.484 per cent.
Australian shares fell after a Reserve Bank of Australia statement that signalled the central bank sees faster economic growth this year and next but doubts inflation will reach the mid-point of its target band until 2020.
Japan's Nikkei stock index .N225 slid 0.16 per cent.
According to Reuters, the euro EUR= was flat on the day at $1.1988 and has lost 0.74 per cent in a month, while the dollar index .DXY, which tracks the greenback against a basket of six major rivals, was down at 92.382.
Overnight, Argentina's peso ARS=RASL, which has been among the worst hit emerging market currencies during the past couple of months on rising US yields, tumbled again to a record low. The currency has been hit by a lack of investor confidence in Latin America's No. 3 economy, which has been blighted by one of the world's highest inflation rates.
Argentina’s central bank raised its benchmark interest rate by 300 basis points to 33.25 per cent on Thursday, but the second steep rate increase in less than a week failed to stop the peso currency from plunging.
Elsewhere, US crude CLc1 dipped 0.03 per cent at $68.41 a barrel, while Brent crude LCOc1 fell to $73.58 per barrel. Gold was slightly higher. Spot gold XAU= was traded at $1313.6 per ounce.