The U.S. dollar fell to a four-month low on Wednesday as optimism about a global recovery and concerns about U.S. fiscal health reduced its safe haven appeal, while oil held near $60 a barrel on hopes for more energy demand as inventories tighten.
Stocks markets in Japan, South Korea and Taiwan gained but they slipped in Australia and Hong Kong as investors bought back some defensive sectors after a solid rally in the last few months left them wondering whether it would last.
Adding to souring sentiment on the U.S. dollar, a commentary in the Financial Times about the risk of the U.S. government losing its top credit rating touched a nerve among traders.
The latest bout of dollar weakness has coincided with surging global equity markets as investors large and small begin to put money back to work that had been locked safely away in dollar-denominated assets.
The decline in the U.S. dollar that we have seen over the past few weeks coupled with rising stock markets seems reflective of an asset allocation shift out of cash into equities, Ashley Davies, currency strategist with UBS in Singapore, said in a note to clients.
Davies added the asset shift could pick up speed if investors bail out of bonds, worried about upcoming supply, and skepticism about government projections about cutting budget deficits.
The ICE Futures U.S. dollar index was down 0.25 percent <.DXY> after earlier plumbing its lowest level since Jan 9. The index has fallen 8.1 percent since March 9, when a global stock market rally started.
The euro rose to its highest point against the dollar in seven weeks at around $1.3722, before easing to $1.3680, up 0.3 percent on the day.
U.S. crude for June delivery rose 1.3 percent to $59.59 a barrel after briefly rising on Tuesday above $60, its highest level since November 2008.
An unexpectedly big draw down of U.S. inventories last week, reported by the American Petroleum Institute on Tuesday, helped buoy bullish sentiment in oil.
Gains in commodity prices in the last few months have not been as big as equity markets since they have been somewhat stymied by inventory levels. However, the falling dollar and some evidence of demand in China have propped them up.
Copper for three-month delivery traded in Shanghai rose 1 percent, after the three-month copper futures on the London Metal Exchange rose 0.9 percent overnight.
Technology shares outperformed in Asia after Intel Corp's chief executive said second-quarter orders had been better than expected so far, while utilities also gained as investors shifted some money back to defensive sectors.
Investors are probably shifting money to defensive stocks and taking profits in those sensitive to the health of the global economy such as exporters and financials as they have recovered sharply, said Masaru Hamasaki, a senior strategist at Toyota Asset Management in Tokyo.
Japan's Nikkei share average <.N225> edged up 0.1 percent, helped by a 5.5 percent rise in shares of Nissan Motor Co <7201.T> after the carmaker forecast a smaller-than-expected operating loss.
Australia's benchmark index fell 0.8 percent <.AXJO>, with mining stocks weighing on the broad market.
Hong Kong's Hang Seng index <.HSI> slipped 0.3 percent with shares of China Construction Bank <0939.HK> one of the biggest drags on the market for a second day.
An investor on Wednesday sold $460 million worth of the company's stock at a slight discount, a day after Bank of America
The MSCI index of Asia Pacific shares traded outside Japan <.MIAPJ0000PUS> rose 0.3 percent, just below a seven-month high struck on Monday.
(Additional reporting by Aiko Hayashi in TOKYO)