The Australian and Canadian dollars lost as much as half a percent against their US counterpart on Monday as a plunge in exports from China underlined the risks of more weakness in one of the economies that drives world growth. Friday's robust US jobs data countered a drop-off in expectations of more policy easing from the European Central Bank to keep the yen, dollar and euro in tight ranges, with another bearish batch of figures from Japan of limited impact.
Sterling was the other major mover in the European morning, suffering from the shift in money market rates in the common currency's favour after the ECB meeting. It slid to 83.35 pence, its weakest in a month against the euro. The Aussie had been on the way back up towards the end of last week, boosted by signs of improvement in its own economy. But like fellow commodity producer Canada, it depends on China extending a decade of robust expansion.
More doubts are emerging on that front. Latest numbers showed Chinese exports fell 18 percent year-on-year in February, and authorities in Beijing continued a campaign to halt any further appreciation of the yuan by setting its daily guidance for the currency at the highest since mid-December. "The Chinese export numbers are the main driver this morning - you can see that the Aussie and Canadian dollars are both under pressure," said Alvin Tann, strategist with French bank Societe Generale in London.
"The situation in Ukraine is back on people's minds and one could already see the pressure on emerging markets on Friday after (strong) US non-farm payrolls." The Aussie traded 0.4 percent lower in the European morning at $0.9033 and 93.31 yen. The euro was holding within sight of Friday's 2 1/2-year high of 1.3915, reached after last week's ECB meeting, which quashed hopes for now of more action to stimulate growth.
Dealers were divided on whether the single currency had the strength to break through $1.40 though some noted the lack of a reaction to concerns over its strength expressed by French central banker Christian Noyer. "Traders are underweight I think in the euro," said a senior spot dealer at one London bank. "Real money investors are also underweight so I think its much more likely to go higher. It was noticeable that Noyer came out this morning and had little real impact." The euro traded roughly steady at $1.3872.
The dollar and the euro both recovered some earlier losses against the yen to be broadly flat. Japan posted a record current account deficit in January and its fourth-quarter growth was revised down but the Bank of Japan is expected to keep policy unchanged at a two-day meeting that began on Monday. Analysts cautioned against reading too much into the Chinese trade figures, which may have been distorted by the Lunar New Year holiday, but investors were taking no chances.
The Aussie's robust showing in the past month surprised many who expected it to weaken on the back of poor Chinese numbers. Citigroup analysts argued in a morning note that the Australian economy and currency may be driven more by domestic developments going forward. "While there is little doubt that a sustained downtrend in Chinese imports would be negative for AUD, there looks to be some cause for caution in overreacting to this weekend's data," they said. "The relationship between AUD and Chinese economic data flow has deteriorated in recent months, with AUD failing to participate in the stabilisation seen in data flow over the second half of 2013."
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