(Updates prices, adds more comment)
* New Zealand dollar falls from highs after intervention warning
* Dollar steadies but still broadly weak
* Ukraine crisis supports safe-haven bid for yen
* Eyes on Yellen speech for more clues on Fed’s rate path
By Patrick Graham
LONDON, May 7 (Reuters) - The New Zealand dollar was the main mover on developed currency markets on Wednesday, falling almost one percent after its central bank warned it could intervene against a currency boosted by rises in official interest rates.
The Reserve Bank of New Zealand has led its peers this year in raising interest rates, driving a 13 percent rally for the kiwi against the U.S. dollar since last August.
The U.S. currency’s failure so far to make good on predictions of a surge this year - it languished close to six-month lows against a basket of major currencies on Wednesday - have helped extend that rise.
New Zealand’s central bank governor Graeme Wheeler, who intervened against its currency at slightly weaker levels a year ago, said the bank could sell the kiwi if it stayed strong in the face of worse fundamentals such as a further fall in export prices.
He also said further currency strength would be a factor in future moves on interest rates although several strategists in London cast doubt on whether that would prevent the bank from hiking official rates further.
“The question for the last three months has been whether there was too much good news in the price for the kiwi ... clearly some of that has come into play,” said Jane Foley, strategist with Rabobank in London.
“New Zealand’s fundamentals are still strong enough to justify (buying the kiwi) but perhaps there is less reason to be gung ho on interest rates than before and pushing toward 88 per dollar is going to be a little bit more difficult from here.”
The currency steadied somewhat ahead of U.S. markets opening but was still down 0.7 percent on the day to trade at $0.8675, more than a cent below almost three-year high of $0.8779 hit on Tuesday.
Still, the message from most analysts remained fairly positive.
“I would be reluctant to go too far with the story markets have bought into overnight,” said Adam Cole, global head of currency strategy with RBC Capital Markets in London.
“On intervention it is a warning but I don’t read it as a threat or a clear signal they will intervene.”
The U.S. dollar took a step lower when London returned from a holiday on Tuesday and investors are braced for the possibility that dovish comments from Federal Reserve Chair Janet Yellen could further undermine the greenback.
The U.S. central bank’s new chief is widely expected to hammer home its dovish position at her congressional hearings on Wednesday and Thursday, even after last Friday’s upbeat U.S. payrolls report.
“Yellen does have the potential to inject some life into the dollar but I think she is going to be cagey,” said Foley.
“The market needs to be convinced that the Fed is going to raise rates earlier than it currently does. We need some more and better data (to do that). For now everyone looks happy to sell any dollar rallies.”
Many analysts and traders view the Fed’s communication since Yellen’s arrival as somewhat garbled. An initial nod towards a rise in interest rates in the first half of next year was quickly talked down by policymakers and there is little faith the Fed will follow its reining-in of bond-buying with actual rate rises anytime soon.
That, along with flows of capital into European capital markets and the European Central Bank’s inability to take more concrete action to weaken the euro, has left this year’s predictions for a stronger dollar looking exposed.
“It now seems quite likely that we could see a test of $1.40 (per euro) very soon, especially if we break the strong resistance level at 1.3967 - the 2014 high,” Danske Bank analysts said in a morning note. “The Yellen speech or inaction from the ECB (at a policy meeting) tomorrow could be potential triggers.”
Against the euro the dollar was steady at $1.3927, within sight of two-month highs of $1.3952 hit on Tuesday.
Against the yen, the U.S. currency recovered from a three-week low of 101.43 yen to trade flat on the day at 101.69. The dollar index was last at 79.135, up slightly on the day but not far from the previous session’s trough of 79.060. (Editing by Pravin Char)