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Australia dollar skids to 6-year low on soft China data

Friday, July 24, 2015 - 13:01
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The Australian dollar dropped to its lowest in six years on Friday after disappointing China manufacturing data put further pressure on already ailing commodity prices.

[SYDNEY] The Australian dollar dropped to its lowest in six years on Friday after disappointing China manufacturing data put further pressure on already ailing commodity prices.

The Aussie fell as low as US$0.7269 from the day's high of US$0.7355 and was set for a weekly drop of 1.5 per cent, its fifth week of losses. It was last at US$0.7289.

The flash Caixin/Markit China Purchasing Managers' Index (PMI) dropped to 48.2, the lowest reading since April last year and the fifth straight month under 50.

Investors regularly use the Aussie as a liquid proxy for risk in China, Australia's biggest export market. "There was pretty clear impact when that data came out,"said Greg Gibbs, forex strategist at RBS. "It was quite a decent miss, it's below expectations by over a point, which is a lot for PMI," he added.

The currency was also unsettled when Standard & Poor's said it might ultimately lower Australia's credit rating should the government's budget position not improve as it expects.

Yet the agency affirmed the triple A rating with a stable outlook, meaning there was no risk of a change anytime soon.

The New Zealand dollar also slipped back to US$0.6577 after a short-lived climb to US$0.6695 overnight. "We remain short NZD/USD from 0.6605, and happy to let the trade run...We remain of the view that any rallies will be sold into," said BNZ strategist Raiko Shareef in a note.

Near-term kiwi support is seen at US$0.6560 with US$0.6500 a more substantial base with resistance around US$0.6650.

The Reserve Bank of New Zealand this week cut interest rates for the second time this year and a further quarter-point easing is seen as a virtual certainty for September. Analysts in a Reuters poll see the cash rate at 2.5 per cent by the end of the year where it will stay through 2016.

Not helping was local data showing a small trade deficit in June. which pushed the annual shortfall to its worst in six years.

New Zealand government bond yields were as much as 8 basis points lower at the long end of the curve.

Australian government bond futures rose as the poor Chinese data added to the case for more policy easing. The three-year bond contract added 8 ticks to 98.100, while the 10-year contract rose 6 ticks to 97.1650.

REUTERS