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FOREX-Kiwi, Aussie slumps after New Zealand cut rates

Published 10/09/2015, 10:08 am
Updated 10/09/2015, 10:17 am
FOREX-Kiwi, Aussie slumps after New Zealand cut rates
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* Kiwi falls more than 2 pct after RBNZ rate cut

* Brazil rating cut seen weighing on emerging currencies

* Major currencies in limbo ahead of Fed's meeting

By Hideyuki Sano

TOKYO, Sept 10 (Reuters) - The New Zealand dollar tumbled on Thursday, taking down the Australian dollar with it, after the New Zealand's central bank cut its benchmark interest rate and signalled it may ease policy further as the economy softens.

The kiwi fell 2 percent to as low as $0.6274 NZD=D4 , just 30 pips above its six-year low of $0.6244 hit on Monday.

The Reserve Bank of New Zealand (RBNZ) cut its official cash rate by 25 basis points to 2.75 percent as widely expected amid a sharp fall in export prices and a slowdown in earthquake reconstruction.

RBNZ Governor Graeme Wheeler said a big slowdown in China's economy could have a negative impact on New Zealand, highlighting growing global fears about the risk of a hard landing in China.

The Australian dollar, often seen as a proxy on China because of Australia's dependency on resource exports to China, shed 0.5 percent to $0.6977, not far from Monday's six-year low of $0.6892.

Also potentially damaging the Aussie, Standard & Poor's stripped Brazil of its investment-grade credit rating late on Wednesday, while keeping the outlook negative.

Because the Brazilian real hardly trades in Asian time zone, some investors often sell the Aussie for hedging as the two currencies have share similar traits, such as close link to commodity and high yields.

"This will surely hurt emerging economy currencies today. The Aussie's reaction seems a bit excessive but maybe it is already trying to price in a gloomy day for emerging markets," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

Other major currencies were little changed, with the dollar losing a bit of steam as rally in global equity prices faded late on Wednesday.

The dollar index stood at 95.918 .DXY, little changed from late U.S. levels on Wednesday.

Uncertainty over whether the U.S. Federal Reserve will raise rates at its policy meeting on Sept 16-17 and concerns about China are likely to keep many investors on their toes.

Data on Wednesday showed U.S. job openings surged to a record high in July and employers appeared to have trouble filling openings, the latest signal of an increasingly tight labour market that could push the Federal Reserve closer to raising interest rates.

Yet, many market players suspect recent volatility in financial markets is likely to keep the Fed from raising rates next month.

Against the yen, the dollar stood at 120.29 yen JPY= , having stepped back from one-week high of 121.20 yen hit on Wednesday. The euro fetched $1.12250 EUR= .

In Asian trade, investors will have another look at the state of Chinese economy on Thursday when China will publish its inflation data (0130 GMT).

The Bank of England's monetary policy committee (MPC) will meet on Thursday, with just one member expected to vote in favour of an immediate hike.

But the accompanying minutes will be watched for clues on future rises, as mixed UK economic data and concerns over global market volatilities have reduced expectations of an early rate hike.

Sterling traded at $1.5354, off Tuesday's one week high of $1.5413.

(Editing by Kim Coghill)

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