* New Zealand c. bank holds rates steady, wrongfoots
investors
* Hedge funds had built up massive short bets against the
Kiwi
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Nov 13 (Reuters) - The Swiss franc rallied to a
one-month high against the euro on Wednesday as hedge funds
unwound some of their negative bets against the currency and as
appetite for risky assets faltered due to the intensifying
unrest in Hong Kong.
A speech by U.S. President Donald Trump where he threatened
to raise tariffs on China and criticised European Union trade
policies before a Nov. 14 deadline to decide whether to raise
tariffs on European and Japanese carmakers also boosted demand
for the negative-yielding Swiss currency.
Hedge fund and banks had ramped up their bearish bets
against the Swiss franc over the last two weeks on expectations
a trade pact between Washington and Beijing would fuel demand
for risky assets and boost carry-trades where investors borrow
in cheap currencies such as the franc and yen and invest in
riskier ones like the dollar and the pound.
"It feels that the market has been getting itself short
Swiss franc the past 2 weeks on back of the rally in risk and
there should be more downside in the euro/franc and the
dollar/franc," said a sales trader at a European bank in London.
Against the euro EURCHF= , the franc gained as much as 0.3%
versus the euro to 1.0904 francs per euro, strengthening to its
highest levels since Oct. 9 while it gained by a similar margin
against the dollar.
The franc's gains were also bolstered by latest weekly data
which showed the Swiss central bank had loosened its grip on the
currency by stepping back from its interventionist stance.
"The latest sight deposit data suggests the SNB is taking a
backseat in currency intervention in the short term but that
that analysis must be taken with a pinch of salt," said Jeremy
Stretch, head of G10 FX strategy at CIBC Capital Markets.
KIWI SOARS
Elsewhere, the New Zealand dollar provided the standout
performance on Wednesday as it stood set to notch its biggest
daily gain in a year after the central bank stunned investors by
keeping interest rates on hold.
Hedge funds and banks had built up massive short positions
in the kiwi NZD=D3 as the local dollar is known before the
rate decision on bets that the conflict between Washington and
Beijing would hurt the export-oriented economy's prospects.
But after two rate cuts this year, the Reserve Bank of New
Zealand said it saw no urgency to ease policy again, sending the
dollar up by more than 1% and short-dated bond yields and swap
rates surging higher. "Like much of the market, we had expected an RBNZ cut
today," UBS strategists said in a daily note.
"Signs of progress in U.S.-China trade talks have soothed
global markets and policymakers alike," they said expecting the
local dollar to strengthen to $0.63 by end-2019.
Against a broadly firm greenback, the kiwi was up 1.3% at
$0.6407, comfortably on track for its biggest daily jump since
end-October 2018.
Almost all analysts had forecast a cut in the 1% benchmark
rate to a record-low 0.75%. Futures markets had priced in a
better-than-75% chance of a cut as slack spending and a global
slowdown held New Zealand's economic growth at a six-year low.
Broadly, the U.S. dollar remained firm against a basket of
its rivals .DXY as weak risk appetite raised the greenback's
safe haven appeal.
It edged 0.1% higher at 98.41, holding just below a
one-month high of 98.423 hit in the previous session, with
market focus turning towards a two-day testimony by U.S. Federal
Reserve chief Jerome Powell later in the day.
The British pound GBP=D3 remained broadly steady around
the $1.2840 line as latest opinion polls forecast a lead for the
ruling Conservative Party.
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