Asian markets take profits as RBA stays pat on policies

Profit-taking in Asian stocks markets on Tuesday saw major benchmarks in the region retreat from previous session highs inspired by the easing measures from the Chinese central bank.

Despite strong cues from US markets on Monday where a record-smashing session on Wall Street saw the tech-heavy Nasdaq climb 0.9% to close above 5,000 for the first time in 15 years, while the broader S&P 500 recorded a new record high, traders in Asian stock markets refrained from adding risk exposure on a number of regional events.

Notably, Australia’s S&P/ASX 200 fell 0.4% while the 10-year Aussie bond yield jumped five basis points to 2.55%. In FX markets, the Aussie dollar was in hot focus, jumping 0.8% to 0.7826 against the US dollar after the Reserve Bank of Australia denied the markets a rate cut.

In the monthly policy meeting, the RBA opted to hold its benchmark interest rate at 2.25% despite widespread predictions of a consecutive cut after it trimmed the rate last month. However, RBA governor Glenn Stevens hinted at further policy loosening in the coming months.

“Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will further assess the case for such action at forthcoming meetings,” said Stevens.

Analysts at Barclays said that following the RBA’s decision to stay on hold, market participants are likely to push back expectations of easing measures rather than remove such expectations so any gain in the Aussie dollar is likely to be short lived.

“We are cognizant of the fact that the Aussie dollar has declined sharply over recent months but expect further gradual weakness in the months ahead, with our end-2015 forecast remaining at AUD/USD 0.75,” said Barclays.

Elsewhere, Tokyo's Nikkei 225 fell 0.2% from the 15-year peak reached on Monday after data showing Japanese inflation-adjusted wages declined for a 19th consecutive month in January.

In China, the Shanghai composite index dropped 2.1% and Hong Kong’s Hang Seng Index fell 0.4% as market participants took cash off the table following the previous session rally driven by the Chinese central bank’s rate cut measures.

Meanwhile, South Korea’s Kospi composite advanced after an inflation report showed consumer prices were rising just 0.5%, the slowest pace in 16 years, which opens to the door for further rate cuts by the Bank of Korea which meets next week to discuss policies.