Dollar stands tall, Asian shares waver

Dollar tests 12-1/2-year peak against the yen after upbeat US data reinforced expectations of a rate hike this year

The dollar tested a 12-1/2-year peak against the yen on Tuesday after a spate of mostly upbeat US data reinforced expectations that the Federal Reserve would raise interest rates this year, while Asian shares were little changed.

MSCI's broadest index of Asia-Pacific shares outside Japan was down in early trade, while Japan's Nikkei stock index edged up about 0.1%.

Australian shares were up about 0.3%, ahead of the Reserve Bank of Australia's policy decision at 0430 GMT. The bank is expected to keep rates on hold at a record low of 2.0%.

"There's been just as much improvement as deterioration in Australian and Chinese data since the last monetary policy meeting in May so between the exchange rate and data, the RBA has every reason to maintain a neutral bias," Kathy Lien, managing director at BK Asset Management in New York, said in a note to clients.

On Wall Street on Monday, US stocks began the month with modest gains after the data. Consumer spending remained flat in April, but construction spending and manufacturing gained momentum, backing the view that the US central bank is on track to begin to hike rates later this year.

The economic reports helped US Treasury yields rise to one-week highs, giving the greenback a lift. In Asian trading on Tuesday, the yield on benchmark 10-year notes stood at 2.182%, not far from its US close of 2.192% on Monday.

Boston Fed President Eric Rosengren, who is not a voting member of the Federal Open Market Committee, said on Monday he would like to begin raising rates as soon as possible, but also noted risks from the slowdown in China and Europe and the fact that US growth is still not strong enough.

Market participants awaited Friday's US nonfarm payrolls report for a further gauge of the strength of employment conditions. The report is expected to show 225,000 jobs created in May, according to a Reuters poll of economists.

Monday's US data lifted the dollar as high as 124.920 yen, its loftiest peak since late 2002. It last stood at 124.85 yen, up about 0.1% on the day.

Uncertainty about the outcome of Greece's financial negotiations continued to weigh on the euro, which was slightly lower on the day at $1.0922.

The leaders of Germany, France, the International Monetary Fund, the European Central Bank and the European Commission agreed at a meeting late on Monday to stay in close contact in the coming days to work on Greek debt negotiations, as Athens and its lenders struggled to reach deal that would prevent the country from defaulting on its debt.

Greece is due to make a 300-million-euro ($327.93 million) repayment to the IMF on Friday.

The common currency was also pressured by business surveys that showed European manufacturing activity remained even more sluggish than its plodding global counterparts.

The firmer dollar hit prices of dollar-denominated commodities overnight.

US crude oil futures plunged more than 1% at one point but pared their losses ahead of the close, and were down about 0.1% on the day in Asian trading at $60.16 a barrel.