HONG KONG - Asian stocks edged to new 19-month highs on Thursday with gains underpinned by an ongoing rally on Wall Street while the dollar came in for a bout of profit-taking after its recent bounce.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent to its highest since July 2015. It is up by a tenth this year thanks to more optimistic earnings expectations and an unwinding of bearish emerging market bets.
Wall Street pushed relentlessly into record-high territory on Wednesday, with the S&P 500 notching a seven-session winning streak.
Some investors said markets were looking slightly overvalued from a technical perspective after the bounce in recent weeks. For example, on a relative strength index (RSI), the MSCI Asia-ex Japan index was at its most overbought levels since 2015.
"We are seeing some profit-taking at these levels and unless there is a big correction, the broader uptrend in the Hong Kong market seems broadly intact," said Alex Wong, Hong Kong-based director of Ample Finance Group.
Though latest regional exports data confirmed an upswing in economic activity in Asia was gathering pace, political uncertainty and anti-globalization rhetoric from the U.S. made investors cautious of adding big positions.
"In light of these risks, we remain cautiously optimistic on Asian equities, having set a 12-month target for the MSCI Asia ex-Japan of 550 – a 7 percent increase from current levels," said Tuan Huynh, Asia CIO for Deutsche Bank wealth management which manages 312 billion euros globally.
Australian stocks gave up early gains and turned lower on the day after new full-time jobs fell sharply in January, a setback after a recent run of positive data.
Caution was also evident in the currency markets with the dollar's recent bounce running out of steam as investors took profits -- even as fresh data showed a pick up in inflationary pressures.
"Retail sales seemed to have been boosted by higher prices rather than an increase in the real consumption," said Shin Kadota, senior forex strategist at Barclays. "Investors also took profit as the dollar was trading high this week."
Fed Chair Janet Yellen, in her second day of economic testimony before Congress, offered no additional insight on the timing of the central bank's next rate hike after her comments a day earlier had hinted at a fairly hawkish policy stance.
Traders may also be leaning towards the Fed delaying a rate increase beyond its March meeting, with the probability of three to four rate hikes by the end of year diminishing slightly, according to the CME FedWatch tool.
The dollar index, which measures the currency against a trade-weighted basket of six major peers, slipped to 100.92. It rallied to a one-month high of 101.76 on Wednesday.
The Australian dollar was the sole bright spot in Asian trade with the currency powering to multi-year peaks against the yen, Swiss franc and euro -- despite a mixed jobs report.
It stood tall versus its U.S. counterpart at $0.7708, having broken key resistance at 77 cents. It briefly popped to a three-month high of $0.7732 after data showed a surprise dip in Australia's unemployment rate.
In commodity markets, oil prices softened as record high U.S. crude and gasoline inventories fed concerns about a global glut. U.S. crude was down 0.1 percent at $53.07 a barrel and Brent was flat at $55.75 a barrel