Dollar surges on rate talk, emerging markets struggle

The dollar extended gains across the board in Asian trade Friday as investors honed in on bullish comments from Federal Reserve boss Janet Yellen on interest rates.

While the surge in the greenback to a five-month high against the yen provided another rally for Japan's Nikkei, traders in other Asian markets were more uneasy, with foreign investors removing cash from emerging markets seeking better US returns.

Last week's shock election of Donald Trump has sent tremors through global markets, with developed nations seeing broad gains but many in Southeast Asia worried about his rhetoric on international trade agreements.

His promises to ramp up spending on infrastructure and cut taxes have led to warnings of a surge in inflation that would force the Fed to hike rates to cap prices. This in turn has led to a rush back into the dollar.

On Thursday Yellen all but confirmed a first rate rise in 12 months by saying such a move would be appropriate "relatively soon". Her remarks came as a new batch of data showed the world's largest economy in rude health.

Weekly new jobless claims hit a 43-year low, the consumer price index posted its strongest gain in six months and monthly housing starts increased.

"Despite no concrete economic proposals on the table from Trump's team... the market is fully subscribing to a return of Reagan-esque fiscal (spending), along with a steeper path of interest rate normalisation," Stephen Innes, senior trader at OANDA, said.

"The markets continue to price in a less dovish Fed in the future, as the market is still likely underpricing the actual inflationary impact of the anticipated fiscal spend."

Ringgit intervention

In Asia the dollar broke above 110 yen for the first time since June, while the euro sank against the dollar to levels not seen in 12 months.

Among emerging market currencies the South Korean won fell 0.6 percent, the Indonesian rupiah shed 0.3 percent and the Mexican peso fell 1.3 percent.

Malaysia's ringgit was off 0.4 percent at a 10-month low. An official said Friday the country's central bank is intervening in markets to support the beleaguered unit, which has lost five percent since last week's US election result.

However, the bank's assistant governor Adnan Zaylani called speculation it could introduce capital controls to prevent a flight of cash from the country "baseless".

Other high-yielding currencies also tumbled, with the Canadian, New Zealand and Australian dollars each off one percent.

In equities trading Tokyo ended 0.6 percent higher with exporters lifted by the weaker yen.

Hong Kong added 0.1 percent in the afternoon and Sydney climbed 0.4 percent. But Shanghai fell 0.5 percent while Jakarta, Kuala Lumpur, Bangkok and Mumbai were all lower.

The stronger dollar also dented oil prices as it makes the commodity more expensive for anyone holding other currencies. Both main contracts fell about one percent in Asia, with investors also nervously waiting for OPEC to agree terms of an agreement -- struck in September -- to cut production.

Key figures around 0700 GMT

Tokyo - Nikkei 225: UP 0.6 percent at 18,967.41 (close)

Hong Kong - Hang Seng: UP 0.1 percent at 22,284.95

Shanghai - Composite: DOWN 0.5 percent at 3,192.86 (close)

Euro/dollar: DOWN at $1.0594 from $1.0630 Thursday

Dollar/yen: UP at 110.70 yen from 109.96 yen

Pound/dollar: DOWN at $1.2391 from $1.2427

Oil - West Texas Intermediate: DOWN 40 cents at $45.02 per barrel

Oil - Brent North Sea: DOWN 29 cents at $46.20

New York - Dow: UP 0.2 percent at 18,903.82 (close)

London - FTSE 100: UP 0.7 percent at 6,794.71 (close)