Asia stocks snap winning streak; RBA hikes, but Aussie sinks. Tuesday saw Asian markets end a three-day winning run as investor excitement over a peak in global interest rates began to wane. Following a rate increase and a change in the central bank’s policy, the Australian dollar fell.

The Asia-Pacific equities outside Japan’s MSCI broadest index (MIAPJ0000PUS) had a 1.2% decline. A rise during the preceding three sessions had raised the benchmark by about 6%. European futures dropped 0.3%, while S&P 500 and FTSE futures dropped 0.2% and 0.3%, respectively.

After unwinding a bit of the rise that accompanied the Federal Reserve’s decision to keep interest rates on hold last week, Treasury bonds remained largely stable in Asia.

The ten-year yield was trading at 4.63%, which is around ten basis points (bps) higher than where it finished on Friday but far lower than the 5% level that was reached in late October. According to Standard Chartered macroeconomist Nicholas Chia, “it remains a tug-of-war between markets and the Fed, as the latter has suggested that higher long-end yields would… do the job of policy tightening for them.”

“Markets probably fret that lower yields would force the Fed to re-think about an extended pause.” Fed funds futures suggest there is little likelihood of another raise, although bets on rate reductions for the upcoming year were reduced.

The Australian dollar was the most volatile currency in foreign exchange trading, dropping almost 0.9% to $0.6430 following the Reserve Bank of Australia’s anticipated 25 basis point boost that raised the cash rate to a 12-year high of 4.35%.

However, the central bank changed its tone over the need for more measures. “It was adovish hike… it’s not pointing to any immediate need for a follow-up,” Rob Thompson, a rates strategist at RBC Capital Markets, stated over the phone while speaking from Sydney.

The New Zealand dollar dropped 0.6% to $0.5930 as it was pulled along for the ride. Australian government bond futures for the next three years rose three ticks, while the ASX200 (.AXJO) recovered from lows to end the day down 0.3%.

A DEMAND FORCE

China’s imports increased unexpectedly in October, but exports shrank more quickly than anticipated, according to data released on Tuesday. These contradictory signs suggest that the country’s economy, the second-biggest in the world, is still recovering unevenly.

In a letter, HSBC economist Erin Xin stated, “The combined effects of both tight credit and a rotation to service consumption exert further pressure on global demand for goods.” The mainland China blue chips (.CSI300) dropped 0.5%, while Hong Kong’s Hang Seng (.HSI) plummeted 1.4%.

As traders undid part of Monday’s rally on reimposing a short-selling prohibition, South Korean equities (.KS11) slumped 3%. The Nikkei (.N225) in Japan dropped 1.1%.

The Nasdaq (.IXIC) on Wall Street ended its longest winning run since January on Monday, recording its seventh straight session of gains. However, the increase was only a meager 0.3% as the rally lost traction. The Japanese yen returned to the weak side of the 150-dollar range, trading at 150.2 during the Asia session due to a slightly firmer dollar.

Even if the Fed starts lowering rates next year, many predict that any further decrease in the dollar’s value will be gradual and uneven. The euro took a break at $1.0710. At 105.36, the US dollar index remained stable. Deutsche Bank analysts Alan Ruskin and George Saravelos stated, “Outside of monetary policy, it is weak global growth and abundant geopolitical risks ranging from Taiwan to the Middle East and Russia that we see as providing continued safe-haven support to the dollar, slowing a dollar down cycle.”

In the commodity markets, oil prices remained stable, with Brent crude futures trading at $84.75 per barrel. Concerns that the conflict in the Middle East might worsen and jeopardize supplies, as well as Saudi Arabia’s and Russia’s confirmation of production curbs, helped with this. At $1,972, gold saw just slight losses, but bitcoin remained just below $35,000.