FOREX-Dollar on defensive, negative rates debate puts focus on Powell

* Dollar on defensive as negative rates debate heats up
* Fed's Powell to speak at 1300 GMT
* Kiwi falls after RBNZ boosts asset purchase, signals more
easing
* Sterling near 5-wk low as COVID-19 hits Britain hard
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, May 13 (Reuters) - The dollar was on the defensive
against its rivals on Wednesday as traders looked to Federal
Reserve Chairman Jerome Powell's speech amid rising speculation
the United States could one day adopt negative interest rates.
The New Zealand dollar fell to this week's low after the
country's central bank expanded its asset purchase programme and
indicated readiness to take further steps -- including negative
interest rates.
The dollar traded at 107.21 yen JPY= , little changed so in
Asian trade after having slipped from Tuesday's peak of 107.76,
its highest since April 24.
The euro changed hands at $1.0848 EUR= after having gained
about 0.4% in the previous session.
U.S. President Donald Trump on Tuesday again pushed the
Federal Reserve to adopt negative interest rates, a hot topic in
financial markets since last week when U.S. money market
instruments started to price in a chance of negative rates.
Data showed on Tuesday U.S. consumer prices dropped 0.8% in
April, the biggest since the Great Recession, raising the
spectre of deflation as the economy sinks deeper into recession
and fuelling the debate about policy responses. "I would advise against negative rates. Japan has done that
but the perception here is that it wasn't so good," said
Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust
Asset Management.
"But what's worrying is that Trump is now talking about
them. Looking at past examples, the Fed has eventually done what
Trump wanted quite often."
Powell will be speaking on current economic issues in a
webcast hosted by the Peterson Institute for International
Economics at 9:00 a.m. (1300 GMT).
Up until now, Fed officials have said they do not see a need
to cut interest rates below zero and some market players expect
Powell to stick to that script.
"If markets price in U.S. negative rates further, the Fed
will need much more communication to rewind such market moves at
a greater cost," said Kazushige Kaida, head of FX sales at State
Street Bank and Trust's Tokyo Branch.
"I think his message is more likely to be something in the
line that the Fed is focusing its efforts more on credit easing
than negative rates."
Still, investors think that will become an option especially
if the coronavirus outbreak leads to further deterioration in
the U.S. economy.
Top U.S. infectious disease advisor Anthony Fauci on Tuesday
warned Congress that a premature lifting of lockdowns could lead
to additional outbreaks of the deadly coronavirus. His comments cast a shadow on optimism in financial markets
in recent weeks that the worst period of the epidemic is over
and the economy can only get better.
U.S. stock prices also slid, led by high-flying technology
shares, adding to the cautious mood on the economic outlook.
That put a brake on a rally in risk-sensitive currencies
such as the Australian dollar.
The Australian currency AUD=D3 last stood at $0.6476,
little changed on the day and off Monday's one-week high of
$0.6562.
The New Zealand dollar lost 0.6% to $0.6036 NZD=D4 ,
touching its lowest level this week, after the Reserve Bank of
New Zealand's policy announcement.
It expanded asset purchase to NZ$60 billion from NZ$33
billion while its policy minutes said negative interest rates
are a future policy option. The British pound stood near its lowest levels in five weeks
at $1.2269 GBP=D4 , pummelled also by continued confusion over
government plans to ease lockdown measures, the worst COVID-19
death toll in Europe and revived Brexit risks.
Official data published on Tuesday showed Britain's death
toll from COVID-19 exceeded 40,000 as of early May, having
overtaken Italy as the worst affected country in Europe.
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