Asia report: Markets, currencies rally on dovish Fed

Most markets in Asia rallied on Thursday, after some clarity from the US Federal Reserve on the pace of its planned interest rate increases came out overnight.

In Japan, the Nikkei 225 shed early gains to close down 0.22% at 16,936.38, extending its losses to three sessions now.

The yen strengthened, advancing from the 113 mark it had held for several days against the greenback. It was last 0.81% stronger at JPY 111.64 per dollar.

Exporters in the country were mainly down as a result of the stronger currency. Nissan lost 0.5% and Toyota was down 1.22%, though Honda bucked the trend and gained 0.46% by close.

On the mainland, the Shanghai Composite closed up 1.2% at 2,904.83, while the smaller Shenzhen Composite finished ahead 3.56% at 1,772.43. The Nasdaq-style ChiNext index of startups rocketed 5.55% to 2,087.29.

Materials shares led the rise in Shanghai, while investors were enthusiastically trading on the ChiNext after local media reported plans to launch a rival startup board in Shanghai - the Strategic Emerging Industries Board - were looking to be delayed or scrapped.

Energy plays in the People's Republic were mixed despite higher oil prices. Sinopec Shanghai Petrochemical gained 1.39%, while China Petroleum remained flat and PetroChina lost 0.13% in Shanghai, though it gained 4.43% in Hong Kong.

The yuan gained on the dollar, and was worth CNY 6.4954 onshore after close in Shanghai. The People's Bank of China had fixed renminbi stronger before the markets opened at CNY 6.4961, against 6.5172 on Wednesday. The yuan can trade 2% above or below its loose peg.

In Hong Kong, the Hang Seng Index was ahead by 1.21% to 20,503.81 at the end of the trading day, while South Korea's Kospi pared back earlier gains to end the day up 0.66% at 1,987.99.

Investors were appearing relieved in the dovish tone from the Fed overnight, where it held its benchmark rate between 0.25% and 0.5%, and said it now expected two rate increases this year, down from the initial forecast of four.

The central bank spoke of its more cautious outlook for the US economy, as well as weaker global growth and increased volatility in the financial markets in its statement.

"This was far more dovish than markets had expected, resulting in sharp rallies in commodities, emerging markets and commodity-related currencies," noted IG market strategist Angus Nicholson.

Oil continued its race upwards after the end of Asian trading, with Brent crude breaking the $40 mark. It was last up 2.35% at $41.30 per barrel, while West Texas Intermediate was up 2.46% at $39.43 per barrel.

In Sydney, the S&P/ASX 200 was up 0.96% to 5,168.20 by the end of the day. The index was buoyed by gains in energy, up 2.75%, and materials, which advanced 2.32%. Investor confidence in the economy was also boosted by fresh jobs data, which showed unemployment in the sunburnt country fell more than expected in February.

Resource producers also made strides in Australia, with BHP Billiton up 2.43%, Fortescue Metals gaining 9.05% and Rio Tinto advancing 2.44%.

New Zealand's S&P/NZX 50 edged forward 0.16%, reversing losses towards the end of trading, to close at 6,573.45. Local analysts pointed to the agrarian economy's lack of resource and energy stocks for the lagging performance.

Financials were a big performer, though, with Australia and New Zealand Banking Group leading the index as it gained 2%, and Westpac up 0.5% in Wellington.

In currencies, the Aussie dollar surged against its US namesake, and was last ahead by 1% at AUD 1.3108. The Kiwi gained 1.25% to sit at NZD 1.4685 per USD.

The rise in the Australian dollar came off the back of the Fed's dovishness, but it came with a warning.

"This [upwards pressure on AUD] could go further in the short term, but with the Fed still heading towards rate hikes and the Reserve Bank of Australia still biased towards cutting rates, we still see the Australian dollar ultimately resuming its downtrend," noted AMP Capital head of investment strategy and chief economist Shane Oliver.