SYDNEY: The Australia and New Zealand dollars resumed declines on Tuesday, tracking a fresh fall in the Chinese yuan to a six-month low, despite some lingering optimism from the U.S. debt ceiling deal.
The Aussie fell 0.4% to $0.6513, giving back all of the early gains in the session to as high as $0.6557. It had risen 0.3% overnight on the initial optimism from a tentative U.S. debt ceiling deal over the weekend, which has yet to pass the narrowly divided Congress.
It is now eyeing the six-month low of $0.6490 hit just last Friday. The Aussie is often sold as a liquid proxy for the Chinese currency, reflecting Beijing’s position as the largest buyer of Australian resources.
The kiwi slid 0.3% to a fresh half-year trough of $0.6037, after eking out a 0.1% gain overnight. It has been underperforming since the Reserve Bank of New Zealand surprised markets last week by signalling that rate hikes had ended.
The onshore yuan fell to 7.0971 per dollar after China’s central bank set the fixing at the lowest level since December, suggesting authorities could be willing to tolerate a weaker currency in the face of growing economic headwinds.
The offshore yuan (CNH) also weakened past a key level of 7.1 per dollar.
“It’s a pretty neat relationship with the yuan today, with CNH breaking some key levels,” said Sean Callow, a currency strategist at Westpac.
The Aussie also lost 0.5% to 91.34 yen and the kiwi eased 0.45 to 84.65 yen.
“The faltering growth momentum in China’s economy remains a major headwind for AUD,” said Carol Kong, a strategist at Commonwealth Bank of Australia.
“The risk is if the recovery in China’s property sector stalls, it will significantly reduce China’s demand for commodities such as iron ore and copper.”
In Australia, data showed building approvals continued to fall at a fast pace in April, down 8.1% from March to the lowest level in 11 years.
Analysts are watching the government’s minimum wage decision to see whether it could add to inflationary pressures, complicating the Reserve Bank of Australia’s job.
Futures see a decent chance of another quarter-point hike in the second half of the year, which would bring the cash rate to 4.1%.