The Australian and New Zealand dollars struggled near seven-month lows on Tuesday after tumbling commodity prices and concerns over China's economy encouraged investors to further unwind long positions. The Australian dollar slid below 89 US cents for the first time since early March, having shed nearly 5 percent so far this month. It was last at $0.8880, not far from $0.8851 touched overnight.
Even a better-than-expected headline reading of China's manufacturing activity failed to cheer Aussie bulls. HSBC's flash PMI for the Asian nation rose to 50.5 in September versus forecasts of 50. The New Zealand dollar shared a similar fate to its Aussie cousin. It was last at $0.8114, having been unable to hold gains after the country's ruling National party won a third term in government at the weekend's election.
The kiwi eased versus most major currencies, retreating from two-month highs versus the Aussie and the yen hit on Monday. It was 0.2 percent lower versus a currency basket at 78.45. China is Australia's single biggest export market and investors often use the currency as a liquid proxy for China plays. "That tells you quite a lot on how engrained the bearish sentiment is towards the Aussie dollar," said Ray Attrill, global co-head of FX strategy at National Australia Bank.
New Zealand government bonds extended gains, pushing yields on medium-dated bonds 3 basis points lower while the 10-year yield slipped to a two-week low around 4.20 percent. Australian government bond futures leapt, having recently touched multi-month lows. The three-year bond contract rose 6 ticks to 97.170, while the 10-year contract added 7 ticks to 96.385.