Australia, NZ dollars soften as China data disappoints

SYDNEY/WELLINGTON - The Australian and New Zealand dollars eased on Monday as investors gave both commodity currencies a wide berth in the face of yet more disappointing data out of China.

China's official Purchasing Managers' Index (PMI) dipped to 49.4 in January, from 49.7. A separate survey showed the official non-manufacturing PMI eased to 53.5, from 54.4. "The upshot is that economic momentum may have deteriorated last month," said Julian Evans-Pritchard, China economist at Capital Economics. "The PMIs provide an early hint of how the economy is performing, but we don't recommend putting too much weight on them." The Aussie, already on the defensive in anticipation of the soft numbers, touched a session low of $0.7043 (S$1). It has since drifted back to $0.7067, down 0.2 per cent on the day.

Also modestly lower, its New Zealand peer traded at $0.6476 , having been as low as $0.6451.

Both currencies were steadier against the yen, taking stock of Friday's sharp rally after a surprise rate cut by the Bank of Japan knocked the Japanese currency sharply lower.

The Aussie fetched 85.65 yen (S$1), while the kiwi was at 78.50 yen, holding on to Friday's near 2.0 per cent rally.

The BOJ's move to adopt negative interest rates also sent bond yields sharply lower across the globe.

New Zealand government bond yields were 1.5 basis points lower at the short end and 4 basis points lower at the long end. "Further downside pressure on yields can be expected today, as the market reacts to the further rally in global rates," said BNZ Currency Strategist Jason Wong.

Australian bond yields also slipped with the 10-year reaching a three-month low of 2.6 per cent.

Reflecting the lower yields, bond futures rose with the 10-year contract putting on 2.5 ticks to 97.390. The three-year bond contract gained 1 tick to 98.140.

Partly holding back the short end is expectations that Australia's central bank will stand pat on rates at Tuesday's review.

All 32 economists polled by Reuters on Friday expected the Reserve Bank of Australia to keep the cash rate at a record low 2.0 per cent at its Feb. 2 meeting. Eleven predicted one or more cuts by the middle of this year.

On Wednesday, New Zealand's jobs data and a speech by the head of the Reserve Bank of New Zealand (RBNZ) will take centre stage. RBNZ's Graeme Wheeler will speak on 'The Global Economy, New Zealand's Economic Outlook and the Policy Targets Agreement'.