WELLINGTON/SYDNEY: The Australian and New Zealand dollars sank to fresh multi-month lows on Monday as deepening concerns that the euro zone's debt crisis will dampen global growth undermined shares and commodities.
The Aussie extended its losses to $0.9592, diving to 10-month lows, having already dropped nearly 10 percent in September, the largest monthly drop in three years since the peak of the global financial crisis. It last traded at $0.9609.
The next level of major support is around $0.9535-75, with resistance at $0.9690.
Worries that a weakening global economy will hurt industrial demand sent risk assets from Asian stocks to commodities and high yielding currencies lower.
Shares in Japan and Australia dived more than 2 percent. Copper skidded further, having already lost 25.6 percent in the September quarter, its worst showing since the peak of the global financial crisis in late 2008.
The euro looked in no better shape. It sank to an eight-month trough against the dollar, and was poised to fall further after the Greek government said the debt-ridden country will miss a deficit target set just months ago in a massive bailout package.
As markets seemed only focussed on the negative, they barely took notice of official Chinese PMI data over the weekend suggesting global demand did not ease as quickly as some investors had feared in recent weeks.
"We view the recent overly-negative market sentiment on China as overblown, as it largely ignores some fundamental factors that continue to differentiate China from the rest of the global economy," said ANZ in a note.
ANZ quoted Beijing's advanced monetary policy tightening, strong fiscal balance sheet and large foreign exchange reserves.
"(This) suggest the economy not only has room for policy stimulus if needed, but also can withstand the negative impact of a global recession," it added.
The Australian dollar, which is particularly sensitive to news from China, its key export partner, suffers from a recent sell-off in Asian currencies.
Foreign investors have been pulling back from emerging markets currencies on mounting concerns another global credit crunch may be looming. The Australian dollar is often taken as a proxy for Asian currencies.
Markets' attention is now turned to the Reserve Bank of Australia (RBA) which will hold its monthly policy meeting on Tuesday. Analysts anticipate it will keep rates steady at 4.75 percent though interbank futures have been pricing aggressive cuts, implying a one-in-five chance easing this week and a total of 63.5 bps of cuts by December.
Markets will be particularly sensitive to any hint of dovishness in the RBA statement.
A private gauge of Australian consumer inflation rose only marginally in September, adding to the case of keeping rates steady.
NEW ZEALAND DOLLAR
The kiwi struggled around $0.7584, having struck a fresh 6-month trough of $0.7575.
The currency, which lost more than 10 percent in September, came under pressure last week following sovereign downgrades from two ratings agencies. A murky global outlook and recent declines in global commodity prices are likely to put further pressure.
"New Zealand's own economic data pulse has fallen further and New Zealand interest rates are unlikely to provide any support for the kiwi during the month ahead," said Westpac senior strategist Imre Speizer.
Technically, the kiwi could test $0.7100 in the near term, while $0.7960 would cap the upside. Financial markets pricing for the next rate hike was pushed out to September next year from the first half of 2012.
The central bank reaffirmed in its annual report on Monday that rate increases to contain inflationary pressures would be slower than in the past.
NZ debt prices a touch firmer, with government bond yields a tick lower along the curve, after jumping last week following the rating downgrades.
Australian bond futures gained with the three-year contract up 0.07 points at 96.460 and the 10-year 0.1 points higher at 95.865.
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