The Australian dollar trimmed gains on Monday and dipped back below 71 US cents as political uncertainty at home weighed on sentiment already soured by a fall in Chinese stocks. The Aussie, often used as a liquid proxy for China plays, slid as far as $0.7063, having turned around from a session high of $0.7136. It last stood at $0.7097, up 0.1 percent on the day. Earlier, follow-through buying from last week's strong performance pushed the Aussie through 71 US cents, surprising some traders and triggering stop-loss buying.
The Aussie then started to lose strength when Chinese stocks fell, and selling picked up in late trade after a senior politician, Malcolm Turnbull, announced that he will be challenging the Prime Minister Tony Abbott for the leadership of the Liberal Party. "Once Shanghai took hold, then anyone who thought that 71-plus cents was looking a little lofty got out again. Downside momentum was exacerbated by the Turnbull/Abbott news," said Annette Beacher, chief Asia-Pacific macro strategist at TD Securities.
"It is unfortunate timing, the whole market was just sitting around reading FOMC previews and we were hit with this," she said, referring to the uncertainty on whether the Federal Reserve will hike interest rates at its policy meeting later in the week. Across the Tasman sea, and ahead of heavy week for data, the New Zealand dollar held its ground at $0.6326, little changed from $0.6320 late on Friday. Gross domestic product figures are set to be released on Thursday. Focus will also be on a milk auction by dairy giant Fonterra and current account figures on Wednesday.
Chart resistance for the kiwi was found at $0.6381 with support at $0.6280. The kiwi dropped below 62 cents last month, a level not seen since 2009. The currency managed to gain 0.7 percent last week even after the country's central bank cut interest rates and left the door open to more easing. Economists are forecasting another cut before the end of the year.
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