4 Min Read
* New Zealand dollar slides on dovish tilt
* Greenback nudges lower as yields sink
* Euro headed for worst week since mid-December
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By John Geddie
LONDON, Feb 9 (Reuters) - The New Zealand dollar was by far the biggest faller among major currencies on Thursday, down almost a full percentage point after its central bank kept rates on hold and said any tightening might be at least two years away.
In week which has seen the U.S dollar find a firmer footing, the greenback was down a tad as lingering risk aversion pinned U.S. bond yields near multi-week lows.
Meanwhile political risks, most notably France's upcoming election, kept the euro stuck below $1.07 with the single currency headed for its worst week in nearly two months.
But the kiwi stole the show for G10 markets, with a dovish steer from the central bank catching investors off guard despite rates being as expected left unchanged at 1.75 percent.
"The RBNZ surprised a market priced for rate hikes by retaining a mild easing bias," said Adam Cole, head of G10 FX Strategy at RBC.
Cole said economists at RBC continue to expect a 25 basis point cut in rates this year, but that markets generally remain skewed towards a hike.
The New Zealand dollar was down 0.8 percent at $0.7201 , pulling away from a three-month high of $0.7375 hit earlier this week.
The Australian dollar suffered collateral damage and last traded at $0.7615, down 0.4 percent on the day.
The dollar index against a basket of major currencies was down 0.1 percent at 100.180, but well off a 2-1/2-month low struck last week.
It gained 0.3 percent against a broadly weaker yen to 112.235 yen.
"We are now in a phase where downside risks to the dollar has become predominant, with the drop in Treasury yields having gained further momentum this week due to perceived European political risks," said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.
The euro was little changed a touch below $1.07 but has shed around 0.8 percent against the dollar this week, on course for its worst run since mid December.
A poll released Friday confirmed far-right leader Marine Le Pen looks set to win the first round of France's presidential election in April, with other polls indicating she will lose the runoff to centrist Emmanuel Macron.
But in a sign of how far voting intentions have shifted, Francois Fillon, a conservative who was favourite to win election only two weeks ago but has seen his campaign damaged by scandal, is now seen knocked out in the first round.
Analysts said the yen could be poised to recover some ground should Trump reiterate his opposition to a strong dollar when he meets Japanese Prime Minister Shinzo Abe at a two-day summit starting on Friday.
"Trump may opt to take a tough stance against Japan amid the perceived political chaos. Taking such a stance would also set him up to talk tough with China," Ishikawa at IG Securities said.
Trump and his top trade adviser Peter Navarro criticised Germany, Japan and China last week, saying the trading partners were engaged in devaluing their currencies to the disadvantage of the United States.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Toby Chopra)