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Dollar driver

Asia Pacific shares are set for further gains after the USD pulled back from 14 year highs overnight. The minutes from the December Fed meeting clipped hawks’ wings, and bond yields slipped back to pre-hike levels. Copper and oil rallied hard, meaning commodity exposed bourses may outperform today.

Expectations of an aggressive tightening stance were soothed by clear evidence from the Fed board of commitment to a gradual path higher for US interest rates. While the actual pace will depend on the data, the meeting minutes reset the market consensus. Growth forecasts are higher, leading investors into shares. The Dow Jones Industrial Average is within 0.25% of an all-time high above 20,000. Short sellers scrambled at the potential for a move through the psychological barrier to spur further buying.

Futures markets are pointing to opening gains in Hong Kong, Australia and Japan of around 0.5%. However, strong gains in energy markets and industrial metals overnight come on the back of a recent upgrade for South32 and a gas discovery for Santos and Oilsearch. This confluence could see resource companies lead the Australia 200 index to another 16 month high.

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