Asian Stocks Drop, NZD Falls As RBNZ Hints At Rate Hikes

TOKYO, May 24 - Asian stocks on Wednesday extended a global sell-off as U.S. debt ceiling negotiations dragged on without resolution, while the New Zealand dollar tumbled after the central bank caught markets off-guard by flagging that its tightening cycle is over.

The U.S. dollar - paradoxically - remained elevated amid safe-haven demand, which was also a driver of Treasuries and pushed yields lower.

Crude oil prices kept rising, though, after a warning from the Saudi energy minister to speculators that raised the prospect of further OPEC+ output cuts.

The New Zealand dollar was one of the major movers in the Asian day. It dropped as much as 1.3% after the Reserve Bank wrong-footed markets by keeping its forecast for the terminal rate at 5.5%, after hiking by a quarter point to that level.

"It's an indication that the tightening cycle is over," said Jason Wong, a strategist at the Bank of New Zealand. "No one was really expecting that."

Market pricing had favoured a half-point hike, and traders were also primed for an extension of the tightening streak.

Japan's Nikkei (.N225) sank 0.5%, extending its retreat from a post-bubble-era peak to a second day.

Hong Kong's Hang Seng (.HSI) declined by 1%, and mainland blue chips (.CSI300) slid by 0.6%.

MSCI's broadest index of Asia-Pacific shares (.MIAP00000PUS) fell 0.4%.

U.S. equity futures, though, pointed to gains of 0.15% at the reopening for the S&P 500 and Nasdaq, after sharp declines overnight.

Representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday with no signs of progress.

Treasury Secretary Janet Yellen has warned that the federal government could no longer have enough money to pay all its bills as soon as June 1, raising the risk of a damaging default.

While the risk of a default that could precipitate a recession is bad for the United States, investors worried about the repercussions for the global economy have turned away from riskier assets.

Reports that the Treasury has asked federal agencies whether they can delay upcoming payments added to the sense of crisis.

"Payment prioritisation is now real," Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

"And while it seems highly prudent to have this conversation, the market's anxiety levels have heated up consequently," he said. "The market is starting to de-risk."

The U.S. dollar index, which measures the currency against six major peers, eased 0.1% to 103.43 but remained close to a two-month high of 103.63 reached last week.

Long-term Treasury yields ticked down to 3.68% in Tokyo, extending a retreat from a more than two-month high of 3.696% reached in New York.

In commodities, gold edged 0.1% higher to around $1,977 as traders eyed debt ceiling talks.

Crude oil prices extended gains from Tuesday, when Saudi Energy Minister Prince Abdulaziz bin Salman warned speculators to "watch out," saying "they will be ouching."

Brent crude futures rose 68 cents to $77.52 a barrel, while U.S. West Texas Intermediate crude (WTI) gained 75 cents to $73.66 a barrel.