Australian dollar drops to worst start on record as China angst intensifies

[SYDNEY] The Australian dollar fell to its the worst start of any year since it began trading freely amid concern China's economy is struggling to regain momentum.

The Aussie and kiwi currencies are dropping amid a meltdown in China, the biggest buyer of the commodities that are key for both Australia and New Zealand.

Concerns that a slowdown in Asia's biggest economy may deepen were exacerbated Wednesday when the central bank cut its yuan reference rate for the seventh day in a row, sending China's currency to a five-year low.

The yen closed at a four-month high against the US dollar on Wednesday as stocks slumped worldwide, spurring demand for havens.

"The Australian dollar has been highly sensitive to Chinese factors and it is vulnerable to further declines," Masafumi Yamamoto, chief currency strategist in Tokyo at Mizuho Securities, wrote in a note.

"The scope of declines against the greenback from the start of the year among Asian currencies is biggest for the Australian dollar and the New Zealand dollar."

The Aussie was at 70.79 US cents as of 9:27 am in Tokyo from 70.72 the day before. It fell nearly 3 per cent through Wednesday, its worst start to any year since currency controls were scrapped in December 1983, according to data compiled by Bloomberg. The kiwi was little changed at 66.49 US cents. It also weakened nearly 3 per cent this year.

The Antipodean currencies also have more scope for declines against the yen, which has benefited from demand for safer assets and surged against the US dollar, Mr Yamamoto said.

The yen was at 118.63 to the dollar from 118.47 when it closed at its highest since Aug 24 on Wednesday. The Bloomberg Dollar Spot Index, which tracks the greenback's performance against 10 currencies of major trading partners, on Wednesday reached the strongest ever in data that start at the end of 2004.

BLOOMBERG