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Kiwi drops with Aussie dollar as weaker yuan fixing unnerves investors

[SINGAPORE] The New Zealand and Australian dollars fell for a second day versus the US currency after China's central bank unnerved investors by weakening the yuan fixing by the most in more than a month.

The yen reversed earlier declines as the People's Bank of China cut its daily reference rate for the yuan by 0.16 per cent, the most since Jan 7. A gauge of the greenback held a four-day advance before minutes of the Federal Reserve's January meeting due Wednesday.

"Markets remain very attuned to surprises out of China and the New Zealand and Australian dollars are the currencies markets that will most likely apply surprises to," said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd in Auckland.

"This will keep the New Zealand and Australian dollars capped." New Zealand's dollar declined 0.3 per cent to 65.59 US cents as of 11:11 am in Tokyo, after plunging one per cent on Tuesday as the average price of whole milk powder fell at an auction. The Australian currency slipped 0.1 per cent to 71.06 US cents.

The yen strengthened 0.1 per cent to 114.01 per dollar, reversing earlier declines of as much as 0.3 per cent. The euro was little changed at US$1.1138.

US Outlook

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was little changed at 1,227.94 from 1,227.65 Tuesday, when it capped a four-day gain.

Investors are monitoring US economic reports, including January housing starts, gauges on producer and consumer prices and industrial production due this week.

With global equities and oil tumbling to start the year and concern building over European banks, traders have practically written off another quarter-point increase by the Fed at least until next year.

"The dollar is broadly bought and so is the yen, so risk sentiment hasn't fully recovered in currency markets," said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd in New York.

"Improved US data are needed to refuel expectations for Fed rate increases."


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