SYDNEY: The Australian and New Zealand dollars teetered close to key support levels on Tuesday, pressured by a slide in the Chinese yuan, soft China trade data and the broad strength of the greenback.
The Aussie fell 0.3% to $0.6555, just a touch above a key support level of $0.6514, a two-month trough hit just three sessions ago.
It was stuck in a narrow range overnight between $0.6555 and $0.6592 as liquidity remained thin due to a local holiday.
The kiwi was also off 0.3% to $0.6090, after eking out a slight gain of 0.1% overnight. Resistance is at $0.6133 while support is at around $0.6060.
Pressuring the two Antipodeans was a sliding yuan which hit a two week trough against the dollar at 7.2100 per dollar earlier in the session, as economic woes in the two countries’ biggest trading partner persisted.
Data showed China’s imports contracted at 12.4% in July, missing forecasts for a drop of 5%, while exports fell 14.5%, compared with a fall of 12.5% tipped by economists.
The Aussie pared some of the earlier losses in a response to the data, along with a pullback in the Chinese yuan.
“It is always a bit unnerving when the yuan gets dumped at the open - hard for Aussie and Kiwi to ignore,” said Sean Callow, a senior currency strategist at Westpac.
Australia, NZ dollars steady after heavy falls, bonds rally
Moody’s decision to downgrade the credit ratings of 10 US banks by one notch on Monday also weighed on sentiment. Long-term bond yields resumed their climbs on Tuesday.
The 10-year Australian government bond yield was up 3 basis points to 4.083%, after jumping to 4.114% earlier in the session.
Down Under, Australian consumer sentiment slipped this month but business conditions proved solid in July, although a spike in labour costs and prices suggested inflationary pressures had yet to abate, a worry for the Reserve Bank of Australia which has paused hikes for two straight months now.
Philip Wee, senior FX strategist at DBS, expects the Aussie dollar could be at risk of pushing below $0.65 if data supports a third consecutive hike from the RBA.
Markets are still favouring a pause in September but they have also priced in an even chance of one last rate hike by the end of the year.
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