The Australian and New Zealand dollars fell on Wednesday as GDP data raised questions about the fragile economic recovery in China, a major destination for the two countries' exports. China reported its economy grew slightly faster than expected in the second quarter but some investors remain cautious about its prospects for further expansion without another burst of government stimulus.
Solid gains for the US dollar weighed further on the Antipodean currencies. The greenback rose strongly, especially against the euro, after Federal Reserve chief Janet Yellen said on Tuesday that rates could rise sooner than expected if US employment improved. In contrast, the European Central Bank is set to keep policy very loose to ward off risks of disinflation in the euro zone. The pound rose to a two-year high against the euro after data showing the slowest British wage growth on record did little to alter expectations the Bank of England will tighten policy in coming months.
Sterling fell against the dollar to $1.7130, off a nearly six-year high of $1.6192 struck on Tuesday, helping push the dollar index up 0.2 percent to 80.556, its highest level in a month. "The main driver to the dollar has been Yellen's less-than-dovish comments," Nordea FX strategist Niels Christensen said. "The Chinese data also has not been able to provide any support to the Australian dollar, while the euro is also weaker. But more good news from the US is needed for the euro to break below $1.35."
The Australian dollar - seen as proxy for China plays because the world's No 2 economy is Australia's largest trading partner - shed 0.25 percent to $0.9350 following the Chinese GDP release. Analysts said that might be because China's National Bureau of Statistics also said a downturn in the property market could create downward pressure on growth. In New Zealand, the kiwi weakened after a report showed the annual inflation rate reached 1.6 percent in the second quarter versus expectations of 1.8 percent. That was well within the Reserve Bank of New Zealand's (RBNZ) target range.
The data may take the pressure off the RBNZ to tighten policy much more this year, although another quarter-point hike next week seems a done deal. The kiwi dropped on the data to a low of $0.8690, pulling further away from a recent high of $0.8839 and its post-float peak of $0.8842 set in August 2011. It last traded down 0.8 percent at $0.8700. The kiwi had already felt the effects of a decline in global milk prices and a drop in volumes at an auction held by New Zealand's Fonterra Co-operative Group.
The euro was down 0.3 percent at $1.3530, falling to its lowest in one-month, while the greenback was slightly higher at 101.75 yen after touching a one-week high of 101.77. The Fed's Yellen is due to speak again later in the day. At a Senate committee hearing on Tuesday, she defended the Fed's loose monetary policy, saying the recovery was not yet complete.
Yellen said early signs of a pick-up in inflation were not enough for the Fed to accelerate plans to raise interest rates, but conceded that this might change if labour markets improved more quickly than expected. "US data should see a good June industrial production figures and later in the day the focus will move to the Fed's Beige Book," said ING's head of currency strategy Chris Turner. "Any sign that wages are rising, refuting the Fed's belief of slack in the labour market, could be positive for US swap rates and the dollar."
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