* Yen holds firm as safe-haven flows return
* Emerging markets under pressure, rate hikes no help
* Fed cuts bond purchases to $65 bln a month as expected
By Anirban Nag
LONDON, Jan 30 Higher-yielding currencies like
the Australian and New Zealand dollars came under pressure
against the safe-haven yen and the dollar on Thursday as a
sell-off in emerging market assets weighed on investor
The mood darkened further after a private measure of Chinese
manufacturing slipped to a six-month low for January and gave
speculators a fresh excuse to target riskier assets like stocks
and rush to the safety of U.S. Treasuries and German bunds.
The demand for Treasuries saw the U.S. 10-year yield
fall to its lowest in more than two months on
Wednesday. It stabilised around those levels, taking in its
stride the Federal Reserve's decision to cut its monthly bond
purchases by another $10 billion.
The gradual reduction in liquidity from the Fed, however,
spooked higher-yielding and riskier currencies like the Turkish
lira and the South African rand, all of which
underpinned the dollar and the yen.
The dollar was up 0.35 percent against a basket of
currencies at 80.782, while the yen gained against the euro
, the Australian and New Zealand dollars
The dollar inched up against the yen at 102.40 yen with more
gains likely in store if U.S. growth data later in the session
beats expectations. The Australian dollar was down 0.1 percent
at $0.8725 while the New Zealand dollar was down 0.8
percent at $0.8155.
"A good GDP number could see U.S. yields push higher and
then questions will be asked why should investors stay in
structurally weak emerging market countries and not prefer the
safety and better fundamentals of the U.S.," said Jeremy
Stretch, head of currency strategy at CIBC World Markets.
"That should be supportive of the dollar."
The euro fell 0.4 percent to $1.3620, with investors
gearing up for soft German inflation data to be released later
in the day. That will stoke talk on whether the European Central
Bank should ease policy further to ward off disinflationary
pressures in the economy.
The wider euro zone inflation data is due on Friday.
NEW ZEALAND DOLLAR
Apart from souring sentiment towards higher-yielding
currencies, investors were also quick to punish the New Zealand
dollar after the Reserve Bank of New Zealand kept interest rates
steady, dashing some expectations that it might raise them.
The kiwi dollar touched a one-month low of $0.8145 in the
European session extending losses seen in Asia.
"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.