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    Asian Session – Fed rate talk lifts dollar as market calm returns

    The dollar moved higher in Asian trading on Wednesday as risk aversion faded after the initial market reaction to the terror attacks in Brussels on Tuesday that saw a sell-off of risk assets. Stock markets in Asia were muted today as trading winds down ahead of the Western Easter holiday weekend.

    The greenback climbed against the euro and the pound but was unable to advance beyond yesterday’s rebound versus the yen. The dollar was last trading at 112.37 yen in late Asian session, while the euro and the pound retreated to 1.1185 and 1.4164 dollars respectively.

    Supporting the US currency on Wednesday were more hawkish comments by Fed officials. Chicago Fed President Charles Evans told reporters on Tuesday that he is projecting two more rate hikes this year. His views were echoed by Philadelphia Fed President Patrick Harker who was even more hawkish and suggested he would prefer to see more than two hikes in 2016. Although neither official is a voting member this year, both had previously expressed more dovish views on rates. This may signal a changing tone within the Fed which contrasts with Janet Yellen’s more cautious stance at the last FOMC meeting.

    As the Fed debates when to next raise rates, the Bank of Japan signalled again it was ready to ease monetary policy further if needed. Bank of Japan board member Yukitoshi Funo said earlier today that the Bank won’t hesitate to deploy further steps if the downside risks increase. However, he warned that there’s a limit to how deep interest rates can be cut into negative territory.

    Commodity-linked currencies were weaker on Wednesday as dollar strength and lower oil prices weighed on currencies such as the Australian and New Zealand dollars. The aussie briefly dropped below 0.76 versus the greenback but managed to reclaim the level in late Asian trading. The kiwi saw a sharper decline and was last trading at 0.6721.

    Crude oil prices came under pressure after data from the American Petroleum Institute showed a rise in US stockpiles to record levels last week. US oil futures were last trading at $41.11 a barrel.

    Gold prices headed lower on Wednesday as market confidence was quickly restored after yesterday’s events. The yellow metal’s rally to $1260 yesterday proved short-lived and prices have since come down to $1235 an ounce.

    The rest of the day will be relatively quiet with the only major data being in the form of the latest new home sales in the US. Crude oil inventories from the US Department of Energy will also be eyed, while the Fed’s Bullard will be speaking to Bloomberg.

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