* Yen firm across the board as safe haven flows return
* Emerging markets under pressure, rate hikes no help
* Fed as expected cuts bond purchases to $65 bln a month
* Final report on China's manufacturing sector next up
By Ian Chua
SYDNEY, Jan 30 Investors ploughed back into the
yen early on Thursday as safe-haven demand returned with a
vengeance, while the New Zealand dollar came in the cross hair
of sellers after the central bank left interest rates steady.
Renewed stress in emerging markets saw U.S. Treasuries soar,
pushing the benchmark yield to its lowest in over
two months. The rally came even after the Federal Reserve cut
its bond purchases by another $10 billion to $65 billion a month
in a widely expected move.
The loss of yield support knocked the dollar down sharply
against the yen and allowed the euro to bounce back from
one-week lows. The euro also fell against the Japanese currency,
which is usually bought in times of heightened tension.
The dollar last traded at 102.15 yen, having fallen
from Wednesday's peak of 103.45, while the euro skidded to
139.47 yen from 141.26.
The dollar index was down just a touch as the euro
rebounded to $1.3661 from a one-week low of $1.3603.
"Looking beyond the current period of market stress, we
think the Fed's tapering program should underpin the U.S. dollar
going forward and we remain short EUR/USD as a trade
recommendation," analysts at BNP Paribas wrote in a note to
Investors were also quick to punish the New Zealand dollar
after the Reserve Bank of New Zealand (RBNZ) kept interest rates
steady, dashing some expectations it might raise them.
The kiwi dollar tumbled more than half a U.S. cent even as
the RBNZ laid the groundwork for a rate hike in March. It
plumbed a one-month low of $0.8177 before steadying at
"The on-hold decision implies a little less urgency from the
RBNZ than some participants may have thought, and a modest
toning down of expectations is reflected in these adjustments,"
said Nick Tuffley, chief economist at ASB.
"It is unlikely it will fall too far, with the NZ economic
outlook looking solid, and the prospect of higher interest rates
just around the corner."
In contrast to the RBNZ, central banks in Turkey and South
Africa lifted interest rates in the past 48 hours as they
scrambled to stem a panic flight of capital that had sent their
currencies and stocks skidding.
Yet, sentiment remained fragile with many emerging market
currencies under pressure again overnight. Part of the reason
for this exodus is less easy money from the Fed and the rate
hikes have done little to stem the outflows, traders said.
The South African rand fell more than 2 percent to
11.21 per dollar even after the country's central bank raised
rates for the first time in almost six years.
Sentiment could easily sour further should a report on
China's factory activity confirm softness in the sector. HSBC
will release the final report at 0145 GMT.