Aussie Approaches Six-Year Low While Yen Gains on China Concern

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Australia’s dollar dropped toward a six-year low as a decline in a Chinese manufacturing gauge signaled a deepening slowdown in the world’s second-largest economy.

The Aussie weakened versus all its developed-market counterparts along with its New Zealand peer as Chinese stocks slumped toward their first losing week this month. China is the biggest trading partner of both South Pacific nations. The yen and euro gained for a third day amid demand for haven assets.

“The PMI was a very disappointing number and confirms the need for more targeted stimulus from China,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “It’s risk off in FX markets, with the Australian and New Zealand dollars lower, and the yen higher.”

Australia’s dollar fell 0.3 percent to 73.15 U.S. cents at 7:02 a.m in London after slumping to 72.16 on Aug. 12, the lowest since April 2009. New Zealand’s kiwi slid 0.1 percent to 66.26 U.S. cents.

The yen gained 0.4 percent to 122.91 per dollar. The euro advanced 0.4 percent to $1.1287.

The Shanghai Composite Index fell 2.6 percent to bring its decline for the week to 10 percent. It was set to close below its 200-day moving average for the first time since a more-than 150 percent surge began in July 2014.

The Aussie is poised to weaken further if the Chinese stocks gauge fails to recover above that indicator, Trinh said.

Caixin Media and Markit Economics said the preliminary reading for their China Purchasing Managers’ Index fell to 47.1 for August, below even the most bearish analyst’s forecast. Numbers below 50 indicate contraction.

Commodity Currencies

The Australian and New Zealand dollars dropped to six-year lows versus the greenback this month amid slumping commodity prices and concern China’s economy is losing momentum. They also weakened as the U.S. Federal Reserve prepares to raise interest rates for the first time since 2006.

With declines of more than 20 percent each over the past 12 months, they are the worst-performing Group of 10 currencies after Norway’s krone. The dollar has gained 19 percent in that time, the best performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

“The U.S. dollar is set to further strengthen as the Fed gets ready to lift interest rates by year-end,” Commonwealth Bank of Australia analysts including Richard Grace, the Sydney-based chief currency and rates strategist and head of international economics, wrote in a client note. “Slower Chinese economic growth, and lower Asian inflation and interest rates, will continue to put downward pressure on all Asian currencies. It will also put downward pressure on the Australian dollar.”

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