Weak global activity data sends US dollar to six-month high, Aussie skids

JITTERS about global growth, particularly in China, caused the safe-haven US dollar to hit multi-month highs on the Japanese yen, euro and pound on Tuesday (Sep 5), and sent the Aussie dollar down over 1.5 per cent as the Reserve Bank of Australia (RBA) kept rates steady.

The euro was down 0.56 per cent at 1.0735, while sterling fell 0.6 per cent to US$1.2559. Both hit their lowest levels since mid-June after poor activity data in China and Europe drove a risk off tone across asset classes.

The US dollar climbed 0.63 per cent against the yen to 147.42, its highest since November. The US dollar index, which tracks the greenback against six main peers, rose 0.56 per cent to 104.75, its highest since March.

China’s Caixin services purchasing managers’ index was at levels last seen when vast swathes of the country were under lockdown; this was the latest in a series of weak data points from the world’s second-largest economy. Eurozone business activity also declined faster than estimated last month.

“The twin drivers of US dollar strength of US higher yields and weaker growth conditions outside the US are still in fifth gear,” said Simon Harvey, head of FX analysis at Monex Europe.

US treasury yields rose. The US 10-year yield was up five basis points, at 4.2261 per cent.

The China-exposed Australian dollar was the most affected on Tuesday, falling 1.6 per cent to US$0.6363, its lowest since November.

The currency was also hurt by the RBA’s latest policy update. The central bank left its benchmark cash rate on hold at 4.1 per cent for a third month in a row, but left the door open to future increases. Market pricing reflects expectations that rates will go no higher from here.

“The RBA’s policy stance overall remains a weight on the Aussie, especially against the US dollar, where the Fed funds rate seems highly likely to remain 125-plus basis points above the RBA cash rate deep into 2024,” said Westpac analyst Sean Callow.

The US dollar also climbed against China’s currency, and was last up 0.42 per cent at 7.3081 against the yuan traded offshore and up nearly as much in onshore markets.

The greenback hit multi-month highs on the Canadian dollar and Swedish krona, rising as high as C$1.2669, its highest since March, and gaining as much as 0.95 per cent against the Scandinavian currency at 11.111, its highest since November 2022. It also rose as much as 1 per cent on the Norwegian krone.