Aussie Sinks to Two-Week Low as China Data Hurt Export Outlook

  • Currency drops against all major peers as iron ore declines
  • U.S. dollar rises as Fed’s Williams says four hikes possible

Australia’s dollar dropped to a two-week low after worse-than-forecast China manufacturing data sapped the outlook for the South Pacific nation’s commodity exports.

The Aussie fell against all its 16 major peers as iron ore futures slid to the lowest level in seven months. The U.S. dollar rose for the first time in five days against the yen as Federal Reserve Bank of San Francisco President John Williams said four interest-rate increases this year is possible if the economy strengthens. China’s yuan traded onshore rose for a fourth day after a stronger central bank fixing.

“Given China is Australia’s largest trading partner, and key source of demand for Australian commodity exports, signs of moderating growth tend to dampen sentiment towards the outlook for the Australian economy and the Aussie,” said Peter Dragicevich, a foreign-exchange strategist at Nomura Singapore Ltd. “Base metal and steel prices remain under pressure.”

The Australian dollar earlier rose as much as 0.3 percent after retail sales data for April exceeded economists’ forecasts. The currency then reversed gains as China’s Caixin manufacturing gauge for May slid below 50 for the first time since June 2016. 

  • AUD/USD drops 0.5% to 0.7396; reached 0.7385, lowest since May 15
    • Caixin Media and Markit Economics manufacturing PMI fell to 49.6 from 50.3 in April, vs survey forecast of 50.1
    • Australia’s April retail sales rose 1% m/m vs est. +0.3%
    • AUD/USD had only just begun lifting option-related offers above 0.7450 on strong retail sales data when heavy macro selling came through in response to weak China PMI data, Asia-based FX trader says
  • USD/JPY rises 0.1% to 110.94
    • USD/JPY failed to make a new intraday high after hawkish comments from Fed’s Williams as Asia-based funds sold spot above 110.90, according to an Asia-based FX trader
    • Dollar-yen “could find support around 110 if U.S. economic indicators, including May ISM data and Friday’s payrolls figures, show positive signs,” says Yoshinori Aoki, head of FX and monetary trading at Sumitomo Mitsui Banking in New York
  • USD/CNY fell 0.4% to 6.7935 after sliding 1.1% during prior 3 days

— With assistance by Chikafumi Hodo, and Michael G Wilson

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