* RBNZ slashes rates 50 bps, kiwi skids 2%, Aussie 1%
* Yen gains as stunned investors seek safety
* Yuan falls again amid U.S.-China trade conflict
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, Aug 7 (Reuters) – The New Zealand dollar fell 2% on Wednesday after its central bank stunned markets with an aggressive interest rate cut and said negative rates were possible, pushing the Australian dollar lower and triggering a rush into the safety of the Japanese yen.
By 0700 GMT, the Kiwi was on course for its biggest one-day tumble in two years as the currency plunged back to its lowest level since early 2016.
While central banks globally have turned increasingly dovish in recent months as they try to revive growth and fight low inflation rates, the extent of the Reserve Bank of New Zealand’s (RBNZ) move caught markets off guard.
The RBNZ slashed rates by 50 basis points against an expected 25 basis points to 1%, and Governor Adrian Orr said negative rates were possible.
“In our view, today’s decision and Governor Orr’s conference pave the way for further easing and we expect another 25 bp cut in November now, with risks of more easing beyond that,” Barclays economists said in a note.
The kiwi was last down 2% at $0.6397, having earlier hit $0.6378.
The Aussie fell 0.7% to $0.6711 as markets ramped up their bets that Australia would also cut rates faster and deeper than previously expected. Earlier, the Australian dollar dropped 1.1% to $0.6677, a level not seen since early 2009.
Analysts said such large moves into two of the traditionally higher-yielding major currencies had jolted forex markets, and encouraged a move into the perceived safety of the yen.
The Japanese currency rose 0.2% to 106.27, although that was still some way from levels seen on Monday when the escalating U.S.-China trade war panicked investors.
Against the yen, the kiwi dropped 2.3%, at one point falling to the lowest since late 2012, while the Aussie hit 70.74 yen, the lowest since April 2009.
YUAN WEAKENS AGAIN
The Chinese yuan fell again, dropping 0.4% to 7.077 in offshore markets, although it was above Monday’s lows when Beijing shocked markets by allowing the currency to fall through the key level of 7 yuan per dollar.
Concerns are growing because the world’s two largest economies are locked in a bitter trade dispute that rapidly escalated 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.
“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.
The euro was unchanged against the dollar at $1.1196 , while against a basket of currencies the greenback was little moved.
Sterling weakened 0.2% to $1.2154. (Additional reporting by Stanley White in Tokyo; Editing by Catherine Evans)