- Currency erases gain spurred by Turnbull's defeat of Abbott
- RBA minutes focus on international economic conditions
Australia’s dollar snapped a six-day advance after the Reserve Bank said China’s slowdown and market volatility increased risks to global growth, erasing an earlier gain following the selection of Malcolm Turnbull as prime minister.
The Aussie weakened against all except one of its 16 major counterparts as the Shanghai Composite Index headed for its biggest two-day slide in three weeks.
“The weaker Chinese economy and lower commodity prices obviously weigh on Aussie dollar,” saidMitul Kotecha, head of Asia-Pacific currency strategy at Barclays Plc in Singapore.
Australia’s currency slid 0.4 percent to 71.13 U.S. cents at 3:56 p.m. in Sydney. It earlier climbed as much as 0.4 percent to 71.66, the highest level since Aug. 31. Liberal Party lawmakers chose former banker Turnbull as the country’s new leader late Monday following his challenge to Tony Abbott for the ruling party leadership.
“International economic developments had increased the downside risks to the outlook,” the central bank said in minutes of its Sept. 1 meeting released Tuesday, in which it unusually gave global markets top billing.
The RBA kept its key interest rate at a record low 2 percent this month.
One of the effects of record-low borrowing costs in Australia has been a surge in investment property purchases that has prompted measures from the bank regulator. The central bank said there were signs the measures had slowed growth in lending for investment housing.
That “implies more scope for a rate cut, if warranted,” said Sean Callow, a foreign-exchange strategist at Westpac Banking Corp.
The Shanghai Composite Index dropped 3.4 percent Tuesday, poised for a 5.9 percent, two-day slide, the biggest decline since the two sessions ended Aug. 26. Stocks tumbled on Monday after weekend data showed industrial output missed economists’ forecasts and investment in the first eight months increased at the slowest pace since 2000. China is Australia’s largest trading partner.
The Australian dollar has tumbled 7.7 percent this year, the worst performer after New Zealand’s kiwi of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The slowdown in Australia’s economy is the key challenge faced by Turnbull, who used his first address Monday to call for economic vision and leadership as key trading partner China struggles with slower growth.
“Most people assume, given his background, he’s very pro-business,” said Sally Auld, head of fixed-income and currency strategy for Australia at
JPMorgan Chase & Co. in Sydney. “You would expect to see a bounce in both consumer and business confidence, but the thing will be how long it lasts.”