Australian dollar slips on China jitters, euro outshines

Australian dollar slips on China jitters, euro outshines
PHOTO: Bloomberg

SYDNEY/WELLINGTON - The Australian and New Zealand dollars fell on Friday after another disappointing set of Chinese economic figures added to worries about global growth.

The Australian dollar dropped half a US cent in the session to $0.7292. It has lost around 1 per cent since Monday and was pulling closer to a six-year trough of $0.7217 touched last week. Key support was found at $0.7285, a level twice-tested this week.

Its latest blow came after activity in China's factory sector shrank at its fastest pace in almost 6-1/2 years in August.

The Aussie had already been under pressure on tumbling stocks across Asia with investors worried about a sharp slowdown in the Chinese economy and weaker demand for commodities. China is Australia's top export market.

The Aussie nursed hefty losses against the euro which leapt to A$1.5399, its highest since March 2014. It has gained 2.2 per cent so far this week and the next big level is found at A$1.5536.

Dealers said the euro has been a major beneficiary across the board because investors had built long positions in European stocks. But a sharp drop in Germany's blue-chip DAX share index, which hit its lowest level since January, caught these positions in a vicious short-squeeze and lifted the single currency broadly.

Against the New Zealand dollar, the euro rose to NZ$1.7012, from NZ$1.6937, close to a two-year peak of NZ$1.7100 touched earlier this month.

The New Zealand dollar eased to $0.6618, from $0.6588 early, but was still on track to go into the weekend 1.2 per cent higher. If sustained, it would be the largest weekly gain since April.

But for all the kiwi's recent comparative strength the outlook for the rest of the year is to the downside. "The two main factors expected to contribute to NZD/USD weakness during the next few months are RBNZ (Reserve Bank of New Zealand) easing ... and Fed tightening," said Westpac senior strategist Imre Speizer in a note.

Support was seen at $0.6580 with resistance at $0.6675.

It fared better than the stumbling Aussie which fell 0.3 per cent to NZ$1.1020 after the Chinese numbers.

Local figures showed a record number of migration gains and tourist arrivals for the month of July as well as for the year.

New Zealand government bond yields were as much as 5.5 basis points lower at the long end of the curve.

Australian government bond futures rallied, with the three-year bond contract up 5 ticks at 98.070. The 10-year contract gained 8.5 ticks to 97.3900, leading to a bearish flattening of the curve.

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