FOREX-Kiwi, Aussie tumble, yen rises on RBNZ rate cut shock

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Tussle over China currency policy rattles markets
* Markets calm but sentiment remains fragile
* Kiwi falls after RBNZ cuts rates more than expected

(Recasts story)
By Stanley White
TOKYO, Aug 7 (Reuters) - The Aussie and kiwi dollars skidded
to multi-year lows on Wednesday after New Zealand's central bank
shocked markets by flagging the chance of negative interest
rates, sending safe-haven assets soaring.
Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr made
the comments after the central bank stunned traders by cutting
interest rates a larger-than-expected 50 basis points to a
record low of 1.00% due to worries about the global economy.
The yen, which was already firmer versus the dollar, raced
higher against most currencies as the RBNZ's surprisingly dovish
stance inspired risk-off trades.
China's offshore yuan was off its record low, but still
remained weaker versus the U.S. dollar in a sign that more
sparks could fly between the United States and China.
The U.S.-China trade war has entered new territory after
Washington labelled Beijing a currency manipulator, and there
are growing concerns the trade standoff will place additional
strain on the global economy.
"We were already on edge about all the U.S. tariffs against
China, but now people are starting to question whether we're
headed toward some global recession," said Kiyoshi Ishigane,
chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co
in Tokyo.
"When currencies like the Aussie or kiwi fall this hard, it
shows there is real risk aversion, which makes it easier for the
yen to rise."
The New Zealand dollar NZD=D4 fell 2% to $0.6378, a level
not seen since early 2016 and the largest one-day percentage
drop since late March.
The Australian dollar AUD=D3 skidded 1.1% to $0.6677, a
level not seen since early 2009.
Against the yen, the kiwi dropped 2.3% NZDJPY= , at one
point falling to the lowest since late 2012, while the Aussie
AUDJPY= hit 70.74 yen, the lowest since April 2009.
The dollar fell 0.3% to 106.13 yen JPY=EBS in Asian
trading, but could face further losses after 10-year U.S.
Treasury yields fell to a three-year low of 1.6580%, some
analysts said.
Concerns are growing because the world's two-largest
economies are locked in a bitter trade dispute that rapidly
escalated late last week when U.S. President Donald Trump said
he would impose more tariffs on Chinese goods.
China responded on Monday by allowing its currency to weaken
past the psychologically important line of 7 per dollar, which
immediately prompted Washington to label Beijing a currency
manipulator.
Market sentiment has deteriorated rapidly as a result, which
would support the safe-haven yen and hasten yuan declines as
there appears to be no quick resolution to the U.S.-Sino
conflict.
"Escalation of U.S.-China trade frictions has deteriorated
market sentiment, which will eventually make Treasury yields go
lower and the yen go higher," said Tohru Sasaki, head of Japan
markets research at JP Morgan Securities in Tokyo.
"We still expect the dollar to rise to 7.35 yuan by the end
of the year, which will make the U.S. administration very
uncomfortable. I expect the dollar to fall to 104-103 yen by the
end of the year."
The offshore yuan CNH=D3 fell to 7.0815 per dollar, not
far from 7.1397, the lowest since international trading in the
currency began in 2010.
The onshore yuan CNY=CFXS opened trade at 7.0369 per
dollar versus its last close at 7.0250.
China's state banks have been active in the onshore yuan
forwards market this week, using swaps to decrease the supply of
dollars, four sources with knowledge of the matter told Reuters.
The moves by state banks help reduce the supply of dollars
that the market can access to short-sell the yuan.
Trump dismissed fears of a protracted trade war with China
on Tuesday, but Beijing has sent strong warnings that labelling
it a currency manipulator would have severe consequences for the
global financial order.