Australian, New Zealand dollars slide to new 2-1/2-year lows as China concerns mount

THE Australian and New Zealand dollars slid further on Tuesday to hit new two-and-a-half-year lows, haunted by concerns about China’s economy, rising geopolitical tensions and a broad risk-off mood.

The Aussie was off 0.5 per cent at US$0.6267, touching another low point since April 2020, after falling 1 per cent overnight. 

Support now lies around US$0.6250. It also weakened against a basket of currencies of its trading partners, with the trade weighted index falling to 60.1, the lowest since February this year.

The kiwi skidded 0.3 per cent to US$0.5548, the weakest level since March 2020, having also dropped 0.5 per cent in the previous session.

Adding to the downside, the Chinese yuan also renewed its slide to hover around 7.1857 per dollar.

Many investors use the Aussie as a proxy for the yuan given China is Australia’s single biggest export market and a driver of commodity prices. Chinese markets reopened on Monday to a slew of bad news. 

The United States announced strict export curbs to hobble the country’s chip sector, its services sector contracted for the first time in four months, and local Covid-19 cases are now surging to the highest since August.

“The USD is broadly stronger on safe-haven flows with a perfect storm hitting the AUD, as markets catch up with the weak China economic news over the weekend plus news of new US semiconductor restrictions on China coupled with Russia’s retaliation after the Crimea bridge attack over the weekend,” said Rodrigo Catril, senior FX strategist at National Australia Bank.

Strong business activity survey for Australia in September failed to provide any support to the falling currency.

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Businesses reported booming sales, while cost pressures cooled in a hopeful sign for inflation, according to a survey from the National Australia Bank.

Yields on Australian 10-year bonds edged up slightly to 3.997 per cent, compared with its previous close of 3.955 per cent. 

The spread over Treasuries remained around a meagre 1 basis points, after dipping into negative territory last week. REUTERS