Asian shares were mixed early Friday in the last trading session of 2016, with a weaker dollar hurting the competitiveness of exports in the region, while an overnight drop in oil prices sent key energy stocks lower.
The greenbacks rally has shown signs of slowing in recent days as doubts rose over the assumption of the U.S. Federal Reserves rapid interest rate increases. Earlier this week, the National Association of Realtors showed pending home sales dropped in November, a sign of weakening momentum for the U.S. housing market.
The WSJ Dollar Index, which tracks the greenback against a basket of 16 currencies, lost 0.7% in the past five trading sessions and was down 0.3% in early Asian trade Friday.
In turn, that sent the yen 0.3% higher against the dollar on Friday, making Japanese exports expensive.
The Nikkei Stock Average NIK, +0.01% was last down 0.5%. Among key Japanese exporters, Honda Motor 7267, -0.84% dropped 1.2% with Nissan 7201, -0.42% losing 0.5% and Sony 6758, -0.70% falling 0.9%.
However, Toshiba 6502, +9.12% bucked the market downtrend with gains of 9.2%, after some analysts pointed out that the stock was oversold on worries of rising expenses at its U.S. nuclear-power unit.
Overnight in the U.S., crude oil prices fell after crude stockpiles there rose unexpectedly last week. The U.S. Energy Information Administration said crude inventories grew 614,000 barrels compared with a forecast for a decline of 1.4 million barrels by analysts surveyed by The Wall Street Journal.
The price for the more-actively-traded March contract for Brent, the international crude oil benchmark, was down 0.2% in U.S. trade, but recovered slightly in early Asian trade at $56.92 a barrel.
Among energy stocks in the region, Japan Petroleum 1662, -1.51% lost 1.3% with Inpex Corp. 1605, -0.85% falling 0.9%. In Australia, Woodside Petroleum WPL, -1.83% dropped 1.6%, contributing to the 0.4% decline in the benchmark S&P/ASX 200 XJO, -0.58% .
Commodity stocks in Australia also declined broadly, with Fortescue Metals FMG, -1.67% down 1.7% and BHP Billiton BHP, -1.73% shedding 1.3%, despite a weaker dollar making commodities priced in that currency cheaper.
Despite the dollar weakness, copper and oil fell as supply concerns hit markets, said Michael McCarthy, the chief market strategist at broker CMC Markets.
The weaker dollar also hurt markets in the U.S. overnight, with the Dow Jones Industrial Average closing down 0.1% and the S&P 500 ending at 2249.26, its lowest close since Dec. 8.
In the currency space, the euro briefly jumped on Friday against the U.S. dollar in thin Asian trade, with the currency pair spiking above $1.070 its highest level in two weeks from around $1.049 within a matter of moments.
The surge, which lasted only briefly, also lifted the British pound, as well as the Australian and New Zealand dollars, traders said. The euro was last up 0.6% at US$1.0548.
Whether somebody accidentally pressed a button or algo trades were triggered, nobody knows, said Ray Attrill, global head of currency strategy at National Australia Bank.
Some analysts suspected that the thin trading ahead of the New Years holidays contributed to volatility, and triggered stop-loss buying orders for the euro-dollar pair at above 1.05.
Elsewhere in the region, the weaker dollar helped soften the blow of a weakening yuan that has weighed on Chinese stocks. China earlier Friday set the yuan 0.2% stronger against the U.S. dollar with the onshore yuan last trading 0.1% against the greenback. The yuan is allowed to trade in a 2% range either way to the midpoint that is officially set each morning of a working day.
The Shanghai Composite Index SHCOMP, +0.06% was last up 0.2% with Hong Kongs Hang Seng Index HSI, +0.99% adding 0.7%.
The weaker dollar could help stem capital outflows from China, said analysts. Investors there have been buying foreign assets to hedge against a depreciating currency at home.