Asia drifts lower before US jobs report, dollar nurses losses

Reuters: The potential for strong US job data later in the day – which would raise chances of a Federal Reserve rate hike soon – kept Asian financial markets nervously marking time on Friday.

The dollar, which was bullish much of the week, nursed losses after downbeat US manufacturing data tempered the recent optimism on the US economy that revived expectations for a near-term rate hike by the Fed.

A report from the Institute of Supply Management (ISM) on Thursday showed US factory activity contracted for the first time in six months in August, as new orders and production tumbled. The ISM index was 49.4.

MSCI’s broadest index of Asia-Pacific shares outside Japan was barely changed for the day.

Australian stocks lost 0.7%. South Korea’s Kospi and Japan’s Nikkei were flat, and the yen was marginally stronger.

“Some market participants had bet the Fed may raise a US rate as early as this month, but because of the weak ISM data and poor US auto sales, such expectations seemed to have changed,” said Hikaru Sato, a senior technical analyst at Daiwa Securities.

“The US is moving towards tightening, and that direction is the same, but the dollar-yen moves also show that people stepped back from expectations for an imminent hike.”

Asian equity markets took few cues from overnight moves on Wall Street, where stocks were flat with gains in the tech sector offsetting sluggish US factory activity data and lower oil prices.

Given the weak ISM report, markets will look to Friday’s non-farm payrolls to see if the Fed can risk raising rates this month or later this year. Economists polled by Reuters expect the US economy to have added about 180,000 jobs in August.

“While the US manufacturing ISM did undershoot expectations by quite a margin, it is worth remembering that the Fed hiked last year when the ISM manufacturing was at 48.0 and had been sub-50 for three consecutive months,” wrote Sharon Zellner, a senior strategist at ANZ.

“There is therefore potential for markets to whipsaw should we see robust US jobs data tonight, going into the US Labor Day holiday weekend.”

The dollar was nearly flat at 103.360 yen after coming down from a one-month high of 104.00 overnight. The euro traded little changed at $ 1.1199 after bouncing about 0.3% on Thursday. The common currency was at a three-week low of $ 1.1123 earlier in the week.

The greenback had surged against its peers following a relatively hawkish speech by Fed Chair Janet Yellen last Friday, which raised expectations the US central bank was moving closer to a hike.

Sterling inched up 0.1% to $ 1.3285 after jumping 1% overnight on purchasing managers’ index (PMI) data showing the British manufacturing sector staged one of its sharpest rebounds on record in August.