Stocks get AI lift, dollar holds steady ahead of Fed decision

Asia stocks soared on Wednesday, fueled by renewed enthusiasm in artificial intelligence (AI) and solid earnings from major players ahead of a Federal Reserve policy decision. South Korean chipmaker SK Hynix reported a staggering seven-fold increase in quarterly operating profit, further adding to the market's buoyant mood. Investors are eagerly awaiting AI-related earnings from Alphabet and Microsoft after the US market closes, seeking evidence that heavy investments in AI will translate into sustainable revenue growth.

The rally has been characterized by a rising market lifting all stocks, but attention is shifting towards execution risk and whether the anticipated success is already priced into current stock prices. Asia-Pacific shares outside Japan on MSCI's broadest index were up 0.85% in early trade, with Japan's Nikkei up 1.2% and South Korea's KOSPI jumping over 3%. SK Hynix's shares rose 3% shortly after opening, before settling 1.75% higher.

Despite the positive market sentiment, investors are closely monitoring the Federal Reserve's decision later in the day. They are primarily interested in the outlook for interest rates, as inflation remains a significant concern due to the ongoing war in the Middle East. JPMorgan analysts anticipate at least two dissenting voices from the Fed policymakers.

Chair Kevin Warsh's wording during the decision could be seen as dovish if he avoids providing an explanation, which might be interpreted as a signal to maintain current interest rate levels.

The US dollar held steady near a two-week high against six major currencies at 102.37, while the New Zealand dollar fell more than 1% after the Reserve Bank of New Zealand kept its policy interest rate unchanged. The Australian dollar rose 0.25% to US$0.7043 after reporting a sharp increase in consumer prices due to fuel costs. In Israel, the shekel weakened after exit polls revealed a deadlocked wartime election.

Oil prices saw a modest rise, with Brent crude futures up 0.47% to US$114.42 a barrel and US crude adding 0.55% to US$100.45. The potential end to the US-Israeli conflict remains uncertain, with Iranian security council chief Mohsen Rezaei meeting Supreme Leader Ayatollah Mojtaba Khamenei just days after discussions with representatives from Saudi Arabia, Turkey, and Pakistan.