Tech rally lifts Asian stocks as dollar firms on rate-hike bets

Technology shares drove Asian markets higher on Tuesday, supported by a retreat in oil prices and hopes surrounding upcoming US-Iran talks, as the dollar held its ground on expectations of further interest-rate increases.

Investors are also focused on a high-stakes meeting between Donald Trump and Xi Jinping later this week. Xi is due in Washington on Wednesday for the first time in more than a decade, with markets watching for signs that the two largest economies can stabilise ties and possibly extend a trade truce, alongside potential cooperation on artificial intelligence.

Brent crude futures steadied at $100.22 a barrel after falling more than 3% in the previous session and briefly slipping below the $100 mark. Sentiment was further helped by President Trump's remarks that he would be open to meeting Iranian President Masoud Pezeshkian, who is expected to be in New York this week for the UN General Assembly. The comments also pushed bond yields lower.

"The drop in oil is a big factor," said Nick Twidale, chief market strategist at ATFX Global. "Oil is the main driver and investors are jumping back into AI as has been the pattern this year."

MSCI's broadest index of Asia-Pacific shares outside Japan rose over 1% in early trading. South Korean stocks, heavy with technology names, jumped nearly 2%, while Taiwan shares gained 1.3%. Japanese markets were closed for a holiday. Nasdaq futures added 0.37% and European futures were 0.3% higher.

Much of the AI enthusiasm has centred on the strong reception to the launch of Meta's Muse AI assistant. China's blue-chip index rose 0.75% and Hong Kong's Hang Seng gained 0.4%, with AI-related stocks in both markets surging.

"The excitement around Meta Muse is adding weight to the idea that millions of people could eventually use persistent AI agents," said Chris Weston, head of research at Pepperstone. He pointed to a combination of factors supporting the move: renewed confidence in CPU demand, lower crude prices, falling Treasury yields and optimism over the US-China summit.

Rate hikes in focus

Markets are also digesting a fresh wave of rate hikes and hawkish signals from major central banks, reinforcing expectations of further tightening this year. That has underpinned the dollar and weighed on the yen, which stood at 157.39 per dollar near a three-week low after giving up gains made earlier in the month on bets of faster Bank of Japan rate increases.

The BOJ raised rates last week to a 31-year high, but two dissenting votes and a lack of explicit hawkish guidance disappointed investors, leaving the yen vulnerable and fuelling intervention concerns.

"FX intervention remains a blunt tool to prop up currencies, and without a forceful monetary policy response it will be difficult for Japanese authorities to rein in the selloff in the yen," said Matthew Ryan, head of market strategy at Ebury.

The Federal Reserve, by contrast, raised rates last week and warned its inflation fight was not over, keeping the door open to further tightening. The dollar index stood at 100.4, just shy of a seven-week high. Traders are pricing a 56% chance of a hike in October, up from 43.5% a week earlier, according to the CME FedWatch tool.