SINGAPORE: Asian equities slipped and the dollar held steady on Tuesday as investors prepared for an expected U.S. interest rate cut later this week, while the yen remained stable despite a strong earthquake in northeast Japan that caused limited disruption.
Caution dominated markets ahead of several central bank decisions, including one from the Reserve Bank of Australia (RBA) later in the day, as investors seek clearer signals on the global rate outlook.
The RBA, Swiss National Bank and Bank of Canada are all expected to keep rates unchanged this week, while the Federal Reserve is widely anticipated to deliver a rate cut on Wednesday.
Attention, however, is focused on what follows the Fed’s December move, with bond markets pricing in a modest easing cycle. Several major Wall Street banks expect the Fed to cut rates fewer times in 2026 due to persistent inflation risks and a still-strong U.S. economy.
This uncertainty has kept equity markets rangebound. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.28% after a soft session on Wall Street. Japan’s Nikkei edged down 0.08%, and South Korea’s Kospi declined 0.58%.
“With initial risk-reduction mostly done, Powell will likely signal a more cautious tone on further policy adjustments,” said Prashant Newnaha of TD Securities. He added that the Fed’s “dot plot” may indicate just one cut in 2026, though two cuts would be seen as dovish.
While a rate cut is expected, analysts say the Fed’s policy committee could be split. The meeting also comes amid speculation over who will replace Powell when his term ends in May. Kevin Hassett, a top contender and White House economic adviser, said the Fed should continue easing.
Markets are pricing in about 77 basis points of cuts by the end of next year, according to LSEG data. Goldman Sachs’ David Mericle expects the Fed will become more selective with future rate reductions, highlighting likely dissent within the committee.
Asian semiconductor stocks slipped after U.S. President Donald Trump announced that Nvidia’s H200 chips—its second-best AI processors—would be allowed for export to China, subject to a 25% fee. China’s CSI Semiconductor Index dropped roughly 1%.
In currency markets, the dollar was largely stable. The euro traded at $1.1640 and the British pound at $1.33225, while the dollar index held at 99.09, down nearly 9% for the year—its steepest annual fall since 2017.
The Australian dollar hovered at $0.6625 ahead of the RBA decision, with markets wary of any hawkish messaging. The yen traded at 155.87 per dollar after an initial dip following the 7.5-magnitude earthquake; authorities lifted tsunami warnings after evacuating about 90,000 residents and reporting at least 30 injuries.
Gold rose 0.13% to $4,194.11 per ounce ahead of the Fed meeting. Oil prices steadied after a 2% drop in the previous session as traders monitored peace talks aimed at ending Russia’s war in Ukraine.
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