Aussie set for six-year low before RBA meets amid commodity drop

[TOKYO] The Australian dollar approached a six-year low before the Reserve Bank of Australia sets monetary policy and releases preliminary economic forecasts on Tuesday.

The Aussie slid with other commodity currencies on Monday after disappointing manufacturing data in China since Aug 1 weekend deepened concerns that demand for raw materials will wane in the world's second-largest economy. New Zealand's dollar held a four-day decline before an auction for whole milk powder. The Canadian dollar stayed near an 11-year low.

"Commodity prices continue to be a key driver of currency markets with USD/CAD breaking higher," Sam Tuck, a senior currency strategist at ANZ Bank New Zealand in Auckland, wrote in a note dated Aug 4.

"AUD and NZD were also under pressure thanks to commodity correlations." Australia's dollar fell 0.2 per cent to 72.72 US cents as of 8:54 am in Tokyo. It touched 72.35 on July 31, its lowest since 2009. The New Zealand kiwi was at 65.63, less than one cent above its six-year low of 64.99 hit July 16.

Canada's loonie was little changed at C$1.3157 (S$1.38) per dollar, after reaching C$1.3176 on Monday, the lowest since 2004.

All three currencies slid Monday as the Bloomberg Commodity Index tumbled to levels unseen in 13 years, after an official Chinese factory gauge slipped to a five-month low on Aug 1. A private index slid to the lowest in two years Monday.

The Reserve Bank of Australia will keep its benchmark rate unchanged at two per cent at Tuesday's policy meeting, according to all but three of the economists surveyed by Bloomberg.

"The RBA is expected to just repeat its wariness over the currency's strength and declines in commodity prices," Takeru Kurokawa, an analyst in Tokyo at Ueda Harlow, which provides margin-trading services, wrote in a note to clients. "But some dose of caution is needed as structurally similar, resource-reliant Canada and New Zealand both cut rates." Australian trade and retail sales data will be released before before the RBA decision.

BLOOMBERG