The Australian and New Zealand dollars retreated from two-week highs against the US currency on Friday as growing concerns about global economic growth prompted investors to shed riskier assets including the two higher-yielding currencies. A sell-off in global shares due to growing anxieties about weakness in the euro zone and ongoing uncertainty about Chinese economic growth weighed on the Aussie and the kiwi, which also eased on a jump in a key volatility index.
The Aussie slipped as much as 0.2 percent to a session low of $0.8747, retreating from $0.8899 hit the previous day, when broad selling in the US dollar had boosted the domestic currency to its highest level since September 23. By 0218 GMT it had trimmed losses to trade at $0.8777. Analysts said they expected the Aussie to hover around a four-year low of $0.8642 hit last week, while the kiwi would also catch its breath after both currencies sold off heavily against the US dollar over the past several weeks. "Markets have been pretty volatile. I imagine a bit of consolidation will be in order after very choppy moves," said Sue Trinh, senior currency strategist at RBC in Hong Kong.
The New Zealand dollar slipped to an intraday low of $0.7852, before trimming losses to trade at $0.7877, little changed on the day. It was hovering within reach of a 14-month low of $0.7708 hit last week.
Some market participants said both the Aussie and the kiwi tracked a jump in the CBOE Volatility Index, a measure of investor anxiety which hit an eight-month high of 19.38 on Thursday. Selling in the Aussie since the offshore session put an end to three straight days of gains earlier in the week. The currency was also stung by weak domestic labour market data released on Thursday, although investors were uncertain about the data's quality given major revisions.
The Aussie is on track to eke out a 1 percent weekly gain against the US currency, having recovered from a multiyear low plumbed a week ago. But investors expect the Aussie will struggle to rise towards $0.9000 in the near term given ongoing weakness in global prices for commodities, an export earner for the country's resource-driven economy. The kiwi faced technical resistance at $0.7975, the 23.6 percent retracement of its dramatic tumble since mid-July which had capped the currency's gains on Thursday. Against the yen, the Aussie slumped to a two-month low around 94.25 yen, while the New Zealand dollar slipped to about 84.60 yen, approaching an eight-month low around 84.30 yen matched earlier this week.