Yuan dips after China cuts rates; Swedish crown at weakest since 2009

By Rae Wee and Samuel Indyk

London (Reuters) - The yuan slipped toward a seven-month low on Tuesday after China cut interest rates, while the Swedish crown weakened to its lowest level since 2009 against the euro on persistent concerns about the real estate sector.

China lowered its one-year and five-year loan prime rates (LPR) by 10 basis points, the first such easing in 10 months as authorities seek to shore up a slowing economic recovery.

The decision knocked the yuan lower, falling 0.2% in onshore trade to 7.1803 per dollar, not far from last week's nearly seven-month low of 7.1819. The offshore yuan was last 0.2% lower at 7.1769 per dollar, languishing near last week's trough of 7.1916.

"Chinese authorities are concerned about weak growth but are wary about re-inflating the property bubble, so expectations of large stimulus to the property sector might not be met," said ING global head of markets Chris Turner.

"The market is moving towards the view that fiscal stimulus might be lukewarm and that's one of the reasons why the renminbi is staying soft."

Elsewhere, Sweden's crown dropped 0.2% to its lowest level since 2009 at 11.762 per euro. It was last at 11.723 per euro, in close proximity to 2009's record low of 11.8.

Concerns about the property sector have been weighing on the currency and an expected rate hike from the Riksbank next week could add to worries for investors as property makes up 80% of household debt.

"The cross (euro-swedish crown) continues its sharp rally, which is only partially related to data, normal drivers and bad news for the real estate sector," said Danske Bank FX analyst Kirstine Kundby-Nielsen.

"Risk off markets, periods of low liquidity and mere momentum trading have added to SEK weakness," Kundby-Nielsen added.

RATES OUTLOOK

Elsewhere, the Australian dollar tumbled as much as 0.8% to a session low of $0.6855 after minutes from the Reserve Bank of Australia's (RBA) latest policy meeting showed the RBA's decision to raise interest rates in June was "finely balanced".

"The debate illustrated to the market that at the next meeting in July the decision to leave rates on hold might be taken," said Commerzbank FX analyst You-Na Park-Heger.

"The risk of an inflation surprise does of course exist and as a result a rate hike in July is not off the agenda yet. Against this background downside pressure on AUD is therefore likely to be limited for now."

The euro rose 0.1% to $1.0936, supported by a still-hawkish European Central Bank after two policymakers on Monday said the bank should err on the side of further rate increases as the inflation rate could come in even higher than the ECB expects.

Sterling was little changed at $1.2799, ahead of British inflation data on Wednesday and the Bank of England's (BoE) interest rate decision on Thursday.

Markets are expecting the BoE to deliver a quarter-point rate increase, followed by almost another 125 bps of tightening to the end of the cycle.

"Until they have confidence that the inflation is coming down the BoE might not want to push back against market expectations for interest rate hikes," ING's Turner said.

"If that's the case then sterling probably holds onto its recent gains."

The U.S. dollar rose to a seven-month peak of 142.26 yen although it was last 0.2% lower at 141.7.

The Bank of Japan maintained its ultra-easy monetary policy on Friday and the yen has come under renewed pressure amid rising interest rate differentials between Japan and other developed markets.

The U.S. dollar index, which measures the currency against a basket of six others, was down 0.1% at 102.34.

 

(Reporting by Rae Wee; Editing by Christopher Cushing, Gerry Doyle and Susan Fenton)