Asia report: Markets mixed as RBNZ delivers rate cut surprise

Markets in Asia finished in a mixed state on Wednesday, as traders kept a watchful eye on renminbi amid the ongoing US-China trade war, and New Zealand’s central bank slashed interest rates significantly more than expected.

In Japan, the Nikkei 225 was down 0.33% at 20,516.56, as the yen strengthened 0.38% against the dollar to last trade at JPY 106.07.

Of the major components on the benchmark index, automation specialist Fanuc was down 1.56%, fashion firm Fast Retailing was off 0.66%, and technology conglomerate SoftBank Group was 0.23% weaker.

The broader Topix index went the other direction in Tokyo, closing out its trading day 0.05% higher at 1,499.93.

On the mainland, the Shanghai Composite was 0.32% weaker at 2,768.68, and the smaller, technology-heavy Shenzhen Composite slipped 0.43% to 1,438.95.

The People’s Bank of China set the onshore yuan’s loose peg at CNY 6.9996 against the dollar for the day, which was somewhat weaker than markets were anticipating.

China’s central bank allows the onshore version of renminbi to trade at 2% above or below the daily midpoint it sets against the greenback.

The yuan has been closely watched this week, after it broke the psychological barrier of CNY 7 against the dollar on Monday, leading to the US Treasury Department to declare the country as a “currency manipulator”.

“[The] United States disregards the facts and unreasonably affixes China with the label of ‘currency manipulators,’ which is a behavior that harms others and oneself,” was the official response from the People’s Bank of China to the US Treasury.

China’s moves with its currency came after US president Donald Trump surprised markets last week by slapping a fresh 10% tariff on $300bn of Chinese imports from 1 September, just days after the latest round of negotiations between Beijing and Washington.

South Korea’s Kospi was off 0.41% at 1,909.71, while the Hang Seng Index in Hong Kong eked out gains of 0.08% to close at 25,997.03.

The blue-chip technology stocks were mixed in Seoul, with Samsung Electronics falling 0.69%, while chipmaker SK Hynix rose 1.81%.

Oil prices were lower as the region went to bed, with Brent crude last down 0.58% at $58.60 per barrel, and West Texas Intermediate falling 0.6% to $53.31.

In Australia, the S&P/ASX 200 rose 0.64% to end its trading session at 6,519.50.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 surged 1.9% to close at 10,786.26, after the Reserve Bank of New Zealand cut the country’s official cash rate by 50 basis points to a record low 1%.

Market watchers had been expecting a 25 basis point cut to the interest rate.

“The surprise rate action from the RBNZ can only spur the expectations of a similar size cut from the Federal Reserve,” said London Capital Group senior market analyst Ipek Ozkardeskaya.

“The US 10-year yield slipped below 1.66% in Asia, as the probability of a 50-basis-point cut in FOMC’s September meeting stood at 33%, slightly lower than on Tuesday, after the People’s Bank of China stabilised the yuan near the CNY 7 mark to cool off the sell-off across the global equity markets.”

Ozkardeskaya noted that the PBOC had pledged that the yuan would not fall continuously, in an effort to prevent the US-China trade war from turning into a currency war.

“[The] White House’s Larry Kudlow said that they still expect to welcome Chinese officials for September talks.”

Both of the down under dollars were weaker on the greenback, with the Aussie last off 0.37% at AUD 1.4846, and the Kiwi seriously sliding after the RBNZ’s interest rate decision, last trading 1.44% weaker at NZD 1.5545.