The Australian dollar was rocked on Monday as growing doubts about China's ability to manage markets weighed on risk appetite and pulled down bond yields. The Aussie dived to its lowest level since 2012 against the yen at 80.84 yen, having tumbled 7 percent last week in the largest such loss in five years. It did pare back some losses to last buy 81.67 yen but was still around 9 yen lower since early December.
Against its US counterpart, the Aussie stood at $0.6961, not far from a four-month trough of $0.6927 touched earlier in the session. A break under $0.6892 would take it to the weakest level since 2009. Much of the recent weakness came after Beijing set erratic yuan guidance, leading markets to question China's ultimate policy intentions.
"Concerns over markets in China and scepticism over whether their regulators have the smarts to deal with them continue to haunt the Australian dollar," said Stuart McPhee, a senior technical analyst at FX/CFD provider OANDA Australia and Asia Pacific, seeing major support of 70 cents under serious threat. The Aussie, which is often used as a proxy for China plays, skidded 4.5 percent last week in its largest decline in four years. The New Zealand dollar continued to fall, edging down to touch a six-week trough of $0.6509. It was last at $0.6525 having been as high as $0.6677 on Friday.
The kiwi has some support at the $0.6430 level, analysts said, while resistance was found around $0.6700. It also touched a four-month trough of 76.05 yen, before trimming losses to 76.49. New Zealand government bonds gained, with yields falling as much as 3.6 basis points at the long end. The flight to safety gave a springboard to Australian government bond futures, with the three-year bond contract up 6 ticks to 98.060. The 10-year contract added 4.5 ticks to 97.2650, while the 20-year contract was 5.5 ticks higher at 96.7900.
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