FOREX-China, Ukraine worries rattle emerging market currencies

Wed Mar 12, 2014 11:02am EDT

Related Topics

* Yen posts moderate gains on renewed safe-haven buying

* Chilean peso hits near five-year lows on China concerns

* Aussie dollar underperforms among major currencies

* Kiwi dips before expected central bank rate increase

By Richard Leong

NEW YORK, March 12 (Reuters) - Emerging market currencies fell on Wednesday as investor nervousness over China's economy and Ukraine's future intensified, rekindling safe-haven bids for the yen and the Swiss franc.

China's first domestic bond default last week fed fears about slowing growth of the world's second-biggest economy and its demand for copper and other raw materials. This has pummelled the Australian dollar, Chilean peso, the South African rand and other currencies tied to commodity prices.

The diplomatic stalemate between Russia and the West over Ukraine and military moves on both sides have led investors to further cut their exposure to riskier currencies, analysts said.

"China has been a concern with its economic data which have been on the softer side. We have been weak with commodity currencies so far this week," said Dean Popplewell, chief currency strategist at Oanda in Toronto.

The Aussie, the Chilean peso, and South Africa's rand, all of which are usually correlated to the prices of iron, copper and other raw materials.

The Chilean peso fell to near five-year lows on a deepening sell-off in copper in Asian trading. Chile, a major copper exporter, saw its currency last traded at down 0.3 percent versus the dollar at 537.32 pesos, adding to its month-to-date loss to 2.6 percent.

The Aussie was down 0.1 percent, while the rand shed 0.6 percent.

Copper prices in Shanghai fell five percent overnight. London prices were close to their lowest in more than three years.

A fourth day of losses in copper compounded investors' anxiety underpinned by the ongoing tension in Ukraine.

"Everything is on a knife's edge with the political situation there," Popplewell said.

Dealers said the rouble was propped up by central bank support as Russian stock indexes fell again on Wednesday, reacting to the growing chance of western sanctions over Crimea.

The rouble slipped 0.1 percent against the dollar at 36.49 roubles, within striking distance of the record low of 36.675 set on March 3 after Putin moved troops into the Crimea.

Concerns about China and Ukraine has been a net positive for the yen, a safe haven in times of economic stress, but had little visible impact on the other major currencies.

The yen, steadier so far this year after losing a fifth of its value against the dollar in 2013, was holding strong in early U.S. trading, up 0.3 percent against the dollar at 102.75 yen. It was up nearly 0.1 percent against the euro at 142.675 yen.

The Swiss franc, another safehaven currency, strengthened 0.3 percent against the dollar and 0.1 percent versus the euro at 0.8755 franc and 1.2156 franc, respectively.

"If there's any dominant theme, it's one of 'risk-off' given the concern over the slowdown in China and its financial problems," said Daragh Maher, a strategist with HSBC in London. "The next break in that might not come until we see more Chinese numbers tomorrow."

Chinese industrial output, investment and retail sales figures are all due at 0530 GMT on Thursday.

KIWI DIPS BEFORE RATE DECISION

Ahead of a widely expected rise in New Zealand interest rates on Thursday, the New Zealand dollar dipped, last traded down 0.1 percent at 0.8461 to the greenback.

The Reserve Bank of New Zealand was expected to lift interest rates and to map out a path for a series of increases over the next two years at least, a Reuters poll shows, taking the lead among developed economies in tightening policy.

Markets have priced in a 98 percent chance the Reserve Bank of New Zealand will raise its policy rate by 25 basis points to 2.75 percent after holding it at a record low for three years.

On Tuesday, the kiwi hit its highest level since flotation against a currency basket in 1985. On a trade-weighted basis, it rose as high as 79.68, according to Reuters data.

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