Asian stocks drifted lower after initially hitting a one-year high on Wednesday and the dollar hovered near a one-year low, with investors taking a breather from moving money into riskier assets in the hope that the global recovery is strengthening.
The dollar has been battered this week as market participants have favoured high-yielding investments and emerging markets, steering funds away from the safe-haven US currency. Gold's surge above $1,000 has also raised worries that money is being shifted out of the dollar.
The Australian dollar slipped after Australian retail sales surprisingly dropped in July and housing lending cooled. That raised doubts about how soon the central bank would start raising interest rates.
"There has been sufficient strength in recent data and in comment from policymakers for a shift to a tightening bias at the October meeting," said Patrick Bennett, Asia FX and rates strategist at Societe Generale, referring to the Reserve Bank of Australia.
"What is appropriately being called into question is the timing and extent of the action that follows."
Asia is at the forefront of unwinding ultra-loose monetary policies put in place to stem the shock from the financial crisis. With the growth revival in some countries proving unexpectedly strong, some policymakers worry that cheap money is fuelling asset bubbles.
Australia and South Korea are among the countries seen closest to pulling the trigger on higher rates, with investors focusing on a Bank of Korea meeting yesterday for clues on how quickly a rate hike could come.
South Korean authorities are among the most concerned about a property price bubble. A report today showed household mortgage lending slowed in August after tighter controls.
Portfolio managers have been undaunted by the prospect of monetary policy being normalised, with the process expected to be a drawn out one as officials remain cautious about the recovery's staying power.
The MSCI index of Asia-Pacific shares outside Japan dipped 0.1 per cent and gave up early gains that pushed the benchmark to a one-year peak.
So far this year the MSCI APXJ is up 53 per cent, outpacing the nearly 23 per cent rise in world shares and 10.5 per cent increase in the MSCI index of Japanese shares.
Reuters