Asian equities rally as mild US inflation dims September Fed rate hike odds

Asian equities climbed on Thursday following the release of US consumer price data that aligned with forecasts. The benchmark MSCI index for Asia-Pacific shares outside Japan added 0.97 per cent, driven by a 4.4 per cent surge in South Korean stocks and a 1.86 per cent gain in Japan's Nikkei.

The moderate 0.1 per cent increase in US consumer prices for July has weakened the case for the Federal Reserve to tighten monetary policy next month. According to CME Group's FedWatch tool, money markets now price in a 40 per cent probability of a September rate hike, down from 54 per cent a week prior.

Market participants remain cautious despite the cooling inflation print, as further economic indicators loom before the central bank's next policy decision. Den Miki, a senior rate strategist at SMBC Nikko Securities, noted that "both the Fed and markets will likely want to assess the data right up until just before the September FOMC."

Energy markets remained elevated amid stalled diplomatic efforts to resolve the war in the Gulf. US crude dipped 0.83 per cent to $82.58 a barrel and Brent slid 0.71 per cent to $88.35, as Washington and Tehran failed to make progress on implementing a June interim agreement.

Tensions flared after US President Donald Trump asserted that the United States maintains "total control" over the Strait of Hormuz. Iranian officials swiftly rejected the claim, insisting that the critical shipping route remains blocked.

In currency markets, the dollar softened 0.06 per cent against the yen to trade at 159.32. The move reflects mounting speculation that the Bank of Japan will raise interest rates next month, accelerated by a 7.2 per cent year-on-year jump in Japanese wholesale prices that signals broadening domestic price pressures.

Meanwhile, the Reserve Bank of Australia signaled patience regarding its previous monetary tightening. Assistant Governor Christopher Kent stated that the three cash rate increases implemented earlier this year are achieving their intended effect of discouraging spending.

Speaking at a Reuters event in Sydney, Kent emphasized that it would take "some time for tighter monetary policy to have its full effect on economic activity and inflation." The Australian dollar remained steady against the greenback at $0.7062.

Broader market indicators showed mixed results, with US 10-year Treasury yields edging up 0.62 basis points to 4.688 per cent while the dollar index held steady at 99.93. Precious metals also saw modest gains, with spot gold rising 0.28 per cent to $4,419.28 an ounce and spot silver advancing 0.3 per cent to $65.50.