Commodity-linked currencies were pummelled on Monday after data showed Chinese growth unexpectedly faltered in the first quarter, while the yen firmed after the United States said it would watch Japan's policies to ensure it was not manipulating its currency.
The Aussie slipped 0.6 percent to $1.0439 after the annual rate of growth in China, Australia's biggest export market, stumbled to 7.7 percent in the first three months of the year, from 7.9 percent in the previous quarter. That took the Australian dollar further away from a three-month high of $1.0583 marked on Thursday, and dragged the Kiwi dollar well below its 20-month high of $0.8676 struck on the same day.
The Kiwi slumped 1.0 percent to $0.8499, stopping short of support at $0.8480, the 38.2 percent Fibonacci retracement of its March to April rally, above another level of support at $0.8449. A trader who declined to be named said that a slump across commodity markets on the back of the Chinese data, which included a disappointing fall in industrial output, had stirred interest in the safe-haven yen.
The dollar pared its earlier gains against the Japanese currency, sagging 0.5 percent to 97.91 yen after falling as far as 97.55, a one-week low that was well shy of a four-year peak of 99.95 struck on trading platform EBS on Thursday. "Although the Chinese data was a factor, there is more impact today from the shrinking spread between US and Japanese bond yields," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
Japanese 10-year bond yields have seen volatile trade since the Bank of Japan announced a radical monetary policy overhaul that will pump about $1.4 trillion into the economy in less than two years, including purchases of longer-dated bonds. "For dollar-yen to gain again we need both the JGB market to stabilise and also signs that the US economy really is robust... as expectations of the Fed winding down QE retreat, the reasons for buying the dollar are also decreasing," Murata added.
Rising Japanese bond yields added pressure on the dollar's upside against the yen after a US Treasury Department report released on Friday said it would press Japan to adhere to the commitment it made in February as a member of the Group of Seven and Group of 20 nations to let the market determine exchange rates.
However, analysts said the impact of the report would be limited. "It wasn't a direct criticism of Japanese policies themselves, it was just a reiteration of what we'd had before from the G7 and G20 statements: you have to use domestic instruments for domestic goals," said Bill Diviney, currency strategist at Barclays in Tokyo.