(NZ dollar skids after central bank retains neutral rate bias)
* U.S. Treasury yields, Fed hike expectations underpin
* Loonie pressured as Moody's downgrades 6 Canadian banks
TOKYO, May 11 The dollar edged lower after
notching an eight week high against the yen on Thursday in Asian
trade, while the New Zealand dollar tumbled after its central
bank suggested a tightening was further out than markets had
The dollar was slightly down on the day at 114.14 yen
after earlier rising as high as 114.37, its highest since March
The yen had gained in the previous session after U.S.
President Donald Trump abruptly fired FBI Director James Comey,
raising investors' fears that the controversial move would lead
to political turmoil and derail U.S. stimulus steps and tax
Such fears were not entirely vanquished. Days before he was
fired, Comey told lawmakers he sought more resources for his
agency's probe into possible collusion between Trump's
presidential campaign and Russia to sway the 2016 U.S. election,
a congressional source said on Wednesday.
But with markets pricing in around a 90 percent chance that
the economy is strong enough for the Federal Reserve to raise
interest rates at its meeting next month, investors did not lose
sight of fundamentals.
"Optimism about the U.S. economy is quite strong, and the
dollar/yen's downside is quite limited," said Masafumi Yamamoto,
chief currency strategist for Mizuho Securities in Tokyo. "My
June forecast was 108, but I raised it to 115."
Higher U.S. yields have supported the dollar. The benchmark
U.S. 10-year yield retested five-week highs overnight after an
auction result suggested weak investor demand. It was last at
2.394 percent in Asian trading, not far from its
Wednesday U.S. close of 2.410 percent.
The yen's early losses were limited by data out early on
Thursday showing Japan's current account surplus was 2.91
trillion yen ($25.45 billion) in March, supported by solid
income from overseas investments, maintaining a trend that has
continued for almost three years.
The result marked the 33rd straight surplus month, finance
ministry data showed, and beat the median forecast for a surplus
of 2.643 trillion yen in a Reuters poll of economists.
The euro was up 0.1 percent at $1.0874. That pushed
the dollar index, which tracks the greenback against a basket of
six major currencies, to 99.587, down 0.1 percent.
European Central Bank President Mario Draghi said on
Wednesday that it is too early for the ECB to declare victory in
its quest to boost euro zone inflation despite signs the bloc's
economic recovery is strengthening, confirming he is in no rush
to raise interest rates or wind down the ECB's 2.3 billion euro
The New Zealand dollar skidded 1.5 percent to $0.6832
, after the Reserve Bank of New Zealand (RBNZ) held its
benchmark interest rate steady at 1.75 percent and retained its
neutral bias, defying the expectations of many economists that
it would lean toward a tightening of monetary policy in early
"If they don't move the bias upward, we think there will be
more inflation pressure in the near future," said Shinichi
Kashiwagi, head of market sales for Japan at National Australia
Bank in Tokyo.
Reserve Bank of New Zealand Assistant Governor John
McDermott said underlying inflation expectations in the country
had not changed substantially from three months ago and the
central bank has a neutral bias on interest rates.
"There is a lot of noise and some people are
misunderstanding what they are seeing," he said of inflation
expectations, in an interview with Reuters.
The dollar rose against its Canadian counterpart after
Moody's downgraded the credit assessments, long-term ratings and
counterparty risk assessments of six Canadian banks and their
affiliates. It was last at C$1.3729, up 0.6 percent.
Late last week it scaled a 14-month peak of C$1.3793, as
slumping crude oil prices weighed on the loonie. Other factors
adding pressure included U.S. duties on Canadian softwood lumber
and a more uncertain outlook for the North American Free Trade
Agreement under the Trump administration.
(Reporting by Tokyo markets team; Editing by Eric Meijer & Shri