By Tom Westbrook
SINGAPORE (Reuters) - The dollar drifted lower and stocks were cautiously positive on Monday as investors waited for an expected flurry of policy announcements in the first hours of Donald Trump's second presidency and eyed a rate hike in Japan at the end of the week.
Trump takes the oath of office at noon Eastern Time (1700 GMT), and promised a "brand new day of American strength" at a rally on Sunday.
He has stoked expectations he will issue a slew of executive orders right away and, in a reminder of his unpredictability, launched a digital token on Friday, which soared above $70 before sliding to around $50 as traders turned uneasy.
Monday is a U.S. holiday, so the first responses to his inauguration in traditional financial markets may be felt in foreign exchange and then in Asian trade on Tuesday.
U.S. equity futures were a fraction weaker in the Asia session while the dollar, which has rallied since September on strong U.S. data and as Trump's ultimately successful political campaign gained momentum, eased a fraction.
European and FTSE futures were broadly flat. Japan's Nikkei rose 1.2%. (T)
"My sense is a lot is in the price," said Nick Ferres, CIO at Vantage Point Asset Management in Singapore.
"We are still running a low net equity exposure overall because our sense is that the magnitude and speed of the rise in yields and dollar is now challenging for equity valuations."
The dollar is up more than 8% on the euro since September and at $1.0306 is not far from last week's two-year high. But so much is priced in that some analysts feel a more gradual start to U.S. tariff hikes may draw out some sellers.
Trump has threatened tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products, duties that trade experts say would upend trade flows, raise costs and draw retaliation.
The Canadian dollar touched a five-year low of C$1.4486 per dollar on Monday. The Mexican peso hit a 2-1/2 year low of 20.94 per dollar on Friday. [FRX/]
Bitcoin dipped in the early part of the Asian day but remained above $100,000. Benchmark 10-year Treasury yields closed out Friday at 4.61%, up nearly 100 basis points in four months. [US/]
CHINA FOCUS
China is in focus as the target of the harshest potential trade levies. Investors lately cheered better-than-expected Chinese growth data and a Friday phone call between Trump and Chinese President Xi Jinping that left both upbeat.
Hong Kong's Hang Seng rose 2.4% and China's yuan rallied. (HK)
"Basically everyone is waiting for these trade negotiations to begin and see what kind of attitude Xi Jinping takes with Trump," Ken Peng, head of Asia investment strategy at Citi Wealth told reporters in Singapore at an outlook briefing.
"That relationship between the two gentlemen has become very important as a leading indicator of policies."
The yuan is seen likely to slowly adjust to any shifts in trade policy and touched a two-week high of 7.3088 to the dollar. [CNY/]
The Australian dollar, sensitive to trade flows and China's economy, has scraped off five-year lows and, according to Commonwealth Bank strategist Joe Capurso, could test resistance at $0.6322 if Trump's policy changes fall short of market expectations. It was last at $0.6214.
Japan's yen rallied last week as remarks from Bank of Japan policymakers were taken as hints that a rate cut is likely on Friday.
It was last slightly stronger at 155.97 per dollar and rates markets priced about an 80% chance of a 25 basis point rate hike.
In commodities, gold hovered at $2,706 an ounce and Brent crude futures dipped on expectations Trump may ease curbs on Russia's energy sector in return for a truce in Ukraine. [O/R]