Tuesday February 25, 2014 - 14:00:14 GMT
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Reuters - www.reuters.com
FOREX NEWS - Aussie down as yuan falls; Norwegian crown extends gains
* Spot yuan drops below guidance rate first time since 2012
* Aussie dollar dips 0.1 percent
* Norwegian crown gains after Bayer-Algeta deal
* Euro gains vs dollar ahead of Friday inflation reading
By Patrick Graham and Laurence Fletcher
LONDON, Feb 25 (Reuters) - The Australian dollar slipped on Tuesday as a fall in China's yuan deepened, reflecting concern over growth and moves by the People's Bank of China (PBOC) to prod the currency lower.
The Aussie is the nearest developed world currency to a proxy for growth in China, which takes much of Australia's commodities output.
The Australian dollar was down 0.1 percent at $0.9025 , although still some way above January's three-and-a-half-year low of $0.8660.
Meanwhile, the Norwegian crown hit a fresh three-month high of 8.2665 crowns per euro, in largely subdued trading in major currencies.
That extended Monday's gains after German drug firm Bayer's $2.9 billion deal to buy Norwegian cancer drug maker Algeta. The euro was last trading 0.1 percent lower at 8.2860 crowns per euro.
"It's hard to know what the knock-on effect of the yuan drop will be, because the market is unsure as to what's the driver - is it the PBOC curbing speculation, increased political tensions between the U.S. and China, or something else?" said Vincent Crimmins, head of FX strategy and trading at the Bank of Ireland in Dublin.
"For now it appears to be relatively contained, but the Aussie would be the likely underperformer should it materialise into something of significance, with the dollar and the yen the likely outperformers."
Daragh Maher, a strategist at Asia-focused HSBC, played down the prospect of a deeper sell-off of the Aussie linked to the yuan move, at least for now.
But he said players for whom the steady rise of the yuan has been one of the few certainties in global foreign exchange markets in recent years may have to reassess.
After falling another half a percent overnight, offshore rates for the yuan found some support around 6.1240 to the dollar. The spot yuan rate earlier fell below the official mid-point rate for the first time since September 2012, amid speculation the central bank may have intervened in preparation for a doubling of its trading band.
The euro gained 0.1 percent against the dollar at $1.3750 , after the closely watched German Ifo survey beat expectations on Monday.
However, in a week lacking major economic data, all eyes will be on Friday's first estimate of euro zone February inflation.
Recent months' numbers have seen price growth sliding below 1 percent, strengthening the case for more action by the European Central Bank to provoke growth.
Many players who began the year believing more ECB easing and the U.S. Federal Reserve's reining in of its own stimulus would gave the dollar a lift are reconsidering.
But few seem prepared to bet on a stronger euro ahead of the inflation number, forecast to inch down to 0.7 percent.
"We remain skewed towards a stronger euro," Paul Robson, senior desk strategist at RBS, said.
"The Fed continues to add to its balance sheet, even if it is doing so at a slower rate, while the ECB's is still contracting. You might get some drop off in the euro if the ECB takes more action, but if you look at the correlation of exchange rates to interest rates over the past 18 months it hasn't been that close."
© Thomson Reuters 2014. All rights reserved.
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