Aussie sinks to 6-year low as China factory gauge clouds outlook

[SYDNEY] The Australian dollar plunged to a six-year low as a decline in China's official factory gauge eroded the outlook for commodities demand.

The currency dropped as much as 1.1 per cent to 70.37 US cents, touching the cheapest since April 2009. China's official Purchasing Managers' Index dropped to 49.7 for August, the weakest in three years. Numbers below 50 indicate contraction. Australia's central bank left interest rates unchanged Tuesday.

"Australia is largely considered a satellite economy to China, so any indication of weakness in China and traders look at the Australian dollar as the first currency outside China to feel the strain," John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark, said by e-mail.

Reserve Bank of Australia Governor Glenn Stevens and his board kept the cash rate at a record-low 2 per cent, as predicted by markets and economists following reductions in May and February. The currency has tumbled more than 2 US cents since the last meeting, cushioning the impact of lower commodity prices.

BLOOMBERG