Asian stocks rise for third straight day, but investors remain cautious

SINGAPORE (Reuters) – Asian stocks rose for a third straight day on Tuesday, but investors remained cautious as gains in bond markets paused, dampening enthusiasm that global interest rates may be peaking.

Market focus will center on whether the Reserve Bank of Australia (RBA) will raise interest rates when it makes a policy decision at 3:30 GMT.

Core inflation stayed high in the last quarter and the market expects the Reserve Bank of Australia to raise its benchmark cash rate to a four-year high of 60.12%, with a probability of about 35%.

Overnight, the Australian dollar was under mild pressure at $0.6495 in early Asian trade as the greenback rallied on higher U.S. Treasury yields. Australian government bond futures fell slightly, with the ASX200 Index, which has risen for five consecutive sessions, down 0.4 percent.

The broadest index of Asia-Pacific shares outside Japan, released by Morgan Stanley Capital International (MSCI), fell 0.6 percent after rising for a third straight day, gaining nearly 6 percent. Japan’s Nikkei fell 0.8%.

The Federal Reserve left interest rates unchanged last week and a modest jobs report released Friday reinforced bets that the U.S. may not raise rates again in the current cycle.

The yield on the two-year U.S. Treasury note rose nearly 11 basis points overnight, though that only partially recouped last week’s 18-basis-point drop. the yield on the 10-year Treasury note rose 30 basis points on Monday but fell nearly <> basis points last week.

Overnight, the Nasdaq rose for a seventh straight session, its longest streak since 0. However, the Nasdaq was up only 3.<>% as the rally weakened. Futures on Europe’s Standard & Poor’s 500 index fell 0.2 percent each.

“We’ll need a couple more weeks of data to know where we’re headed,” said Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management.” In the meantime, stocks could be hit by economic noise.

China’s trade data will also be released later.

Slow opening

In FX markets, the dollar strengthened slightly, pushing the yen back to a weak 150 against the dollar, hovering at 150.1 in early Asian trade.

The euro took a bit of a breather against the dollar at $1.0710, with analysts expecting any potential decline in the greenback to be rocky and mild, even if the Federal Reserve starts cutting interest rates next year.

The dollar index was steady at 105.32.

Alan Ruskin and George Saravelos, strategists at Deutsche Bank, said: “In addition to monetary policy, we’re seeing continued safe-haven support for the dollar from weak global growth and a range of geopolitical risks from Taiwan to the Middle East and Russia, which is slowing the dollar’s downward cycle.

In Australia, all of the ‘big four’ banks are expecting a rate hike today, but market expectations vary widely and volatility is likely regardless of the outcome. Overnight AUD/USD implied volatility was near a two-month high.

“Any weakness in the Aussie could be more pronounced than in the dollar if the Fed is untenable today,” said Carol Kong, an analyst at Commonwealth Bank.

In the commodities market, oil prices stabilized, with Brent crude futures priced at $84.86 a barrel, supported by nervousness that the Middle East conflict could widen and threaten supplies, as well as reaffirmations of production cuts by Russia and Saudi Arabia.

Gold fell slightly to $1,975, while bitcoin hovered around $35,000.