Asian shares rise, dollar dips as traders await US inflation data

Asian shares nudged higher and the dollar was at a two-month low on Wednesday ahead of crucial U.S. inflation data that will help gauge whether the Federal Reserve is at the end of its aggressive rate hike policy.

The Japanese yen strengthened against most major currencies and last fetched 139.43 against the dollar, its highest in a month.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 0.61per cent higher, while Australia's S&P/ASX 200 index (.AXJO) rose 0.54per cent. Japan's Nikkei (.N225) slid 1per cent.

Economists polled by Reuters expect the consumer price index, scheduled to be released later on Wednesday, to have risen by 3.1per cent in June, after May's 4per cent increase (USCPNY=ECI). That would be the lowest reading since March 2021.

"This data point probably will not change the Fed’s well-communicated intention to resume hiking at the July FOMC meeting," Saxo Markets strategists said in a note.

"However, if the core CPI decelerates as anticipated, investors may continue to keep the odds for September and November rate hikes low."

The core rate is expected to have dropped for a third month to 5per cent from 5.3per cent, though that is more than double the Fed's 2per cent target.

Markets are pricing in a 92per cent chance of a 25 basis point hike later this month, CME FedWatch tool showed, but remain doubtful of further hikes after that.

Fed officials have indicated they expect to hike interest rates by at least another 50 basis points as they tackle persistent price pressures.

China shares (.SSEC) eased 0.14per cent, while Hong Kong's Hang Seng Index (.HSI) rose 0.5per cent in early trading. On Monday, China extended some policies to shore up the real estate sector until 2024-end, stoking expectations of more stimulus.

Rodrigo Catril, senior FX strategist at National Australia Bank, said a meaningful fiscal spending announcement was needed for the market to become more positive on China.

Investor attention will also be on second-quarter earnings this week, with results due from some of Wall Street's biggest institutions, including JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N).

Wall Street banks are expected to report higher profits for the second quarter as rising interest payments offset a downturn in dealmaking.

Nuveen's Chief Investment Officer Saira Malik said companies may find it easier to deliver stronger-than-expected second quarter results as analysts had cut estimates in recent weeks.

"We are cautious about the self-fulfilling optimism driven by these diminished expectations ... we're mindful of mixed U.S. economic data and the potential for two more hikes this year."

The yield on 10-year Treasury notes was down 1.6 basis points to 3.966per cent, down from an eight-month high of 4.094per cent touched on Friday.

The dollar index , which measures the U.S. currency against six peers, fell 0.197per cent at 101.40, having slid as low as 101.37, its lowest in two months.

The euro was up 0.16 per cent to $1.1024, having scaled a two month peak earlier in the session, while the sterling hit 15-month peak of $1.2940.

The Japanese yen continued its ascent and has risen nearly 4 per cent from a seven-month low of 145.07 it touched last month, a level that put traders on alert for possible intervention from Japanese authorities.

The New Zealand dollar was up 0.26 per cent in choppy trading after the country's central bank kept interest rates unchanged at 5.50 per cent.

U.S. crude rose 0.28 per cent to $75.04 per barrel and Brent was at $79.60, up 0.25 per cent on the day.

Spot gold added 0.3 per cent to $1,937.99 an ounce, while U.S. gold futures gained 0.33 per cent to $1,937.60 an ounce.