The Australian and New Zealand dollars fell on Monday weighed down by a diverging interest rate outlook compared with the United States and concerns about the health of China's economy. The Australian dollar was down at $0.7135, from $0.7175 in New York on Friday. It has shed more than 2 percent this month, partly on heightened concerns about a hard landing for the Chinese economy. The Asia giant is the top export market of Australia and New Zealand.
A 2 percent slide in Chinese shares, taking monthly losses for the Shanghai index to 14 percent, was also unhelpful for sentiment toward the Australian and New Zealand dollars. Investors were awaiting key economic data from Beijing on Tuesday. Aussie support was found at $0.7121 and the 6-1/2-year trough of $0.7044 touched last week. The Aussie also suffered against the euro and safe-haven yen, losing around 1 percent since Friday. Renewed speculation that US interest rates could rise as early as next month also broadly strengthened the US dollar. In Australia, a private-sector gauge of inflation showed price pressures well contained in August and no bar to another cut in interest rates if needed.
The Reserve Bank of Australia (RBA) holds a policy meeting on Tuesday and is considered almost certain to keep rates steady at an all-time low of 2.0 percent. But the policy outlook for the longer term varies greatly. A majority of 27 economists surveyed by Reuters saw rates staying steady through 2016, though interbank futures have fully priced in a 25-basis point-cut by early next year. The New Zealand dollar slipped 0.7 percent on the day to $0.6410, weighed down by disappointing economic data released on Monday. A survey showed New Zealand business sentiment dropping to six-year lows in August on the back of tumbling global dairy prices.
The kiwi had recovered from a six-year low of $0.6200 the previous week but was struggling to rise beyond $0.6500. "A look above $0.65 on Friday was very short-lived, and NZD failed to close above that level every day last week, despite attempts to do so. We remain bearish on NZD, and forecast it at $0.62 by year's end," BNZ analysts said in a research note.
The kiwi fell against the Australian dollar and the euro with the trade-weighted index off 0.7 percent at 69.4, its lowest in nearly a month. New Zealand government bonds rose, pushing yields one basis point lower along the yield curve. Australian government bond futures rose, with the three-year bond contract up 2 ticks at 98.200. The 10-year contract also added 2 ticks to 97.2600.
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