SINGAPORE, July 24 (Reuters) - Commodity currencies slid to multi-week lows on Wednesday on the back of weakening raw material prices with the heaviest selling against the yen, which surged to its highest in two months as short sellers bailed out ahead of a central bank meeting.
The Aussie dollar fell 0.5% and at $0.6686 was only 10 pips from chart support levels. It fell more than 1% to 101.79 yen and is down nearly 7% in two weeks.
The New Zealand dollar fell 0.6% to a near three-month low of $0.5914 while the Canadian dollar made a three-month trough of C$1.38 per dollar.
The moves tracked falling prices for industrial metals such as iron ore and copper, which made three-and-a-half-month lows on a gloomy outlook for Chinese demand, and risk aversion in stock markets following some disappointing U.S. earnings.
"We're seeing softer demand in China and Asia in general and the kiwi and Aussie just being pulled down," said Jason Wong, senior markets strategist at BNZ in Wellington.
Markets are also pricing in an 84% chance of a 25 basis point rate cut in Canada later on Wednesday.
The euro and sterling were a little steadier, falling only marginally to touch two-week lows of $1.0842 and $1.2884, respectively, as traders waited for purchasing managers' index figures. The numbers will test support for bets on rate cuts over coming months.
The risk of a rate hike for Japan and recent rounds of suspected currency intervention have speculators rushing to close what had been profitable "carry" trades funded in yen. The Bank of Japan reviews policy next Tuesday and Wednesday.
Dollar/yen went down nearly 1% on Tuesday and fell another 0.6% on Wednesday in Asia to its lowest since mid-May at 155.36 per dollar. The yen is the best performing G10 currency against the dollar in July so far.
Moves in other pairs have been larger, with the euro dropping 1.3% on the yen overnight and a further 0.6% to a 10-week low of 167.48 in Asia. Mexico's high-yielding peso dropped 2% on the yen on Tuesday and another 0.8% on Wednesday.
"Expectations the Bank of Japan could raise rates further over upcoming meetings have risen (and) markets are factoring in two hikes by December," said Corpay currency strategist Peter Dragicevich.
"We think the undervalued yen's revival has further to run."
Later in the week, markets are waiting on U.S. GDP and core PCE data to test expectations for two U.S. rate cuts over the rest of this year. Next week's second-quarter inflation data in Australia will be crucial for pricing in the risk of another interest rate hike.
Reporting by Tom Westbrook; Editing by Sam Holmes
Source: Reuters