SYDNEY/WELLINGTON: The Australian dollar fell to a fresh 2-1/2-week low against the greenback on Wednesday, staying under a cloud after a survey showed consumer sentiment deteriorated sharply this month.
The Aussie slid as far as $0.9216, before recovering a bit of ground to stand at $0.9235, down 0.1 percent on the day.
It fell nearly 1 percent on Tuesday in its biggest one-day decline in four months.
David de Ferranti, market analyst at FXCM in Sydney, said the break below 93 US cents on Tuesday had cleared out a lot of buyers for AUD/USD.
"Traders will be looking at 0.9170 as the next level of support if we manage to break 92 US cents today," he said, adding: "The dismal consumer sentiment reading today alongside a recent deterioration in other leading indicators reinforces the need for a period of stability for rates from the RBA."
A measure of Australian consumer sentiment plunged to lows not seen since August 2011 as households fretted about their finances a week after the government unveiled a tough budget.
The Aussie was already on shaky ground due in part to persistent weakness in the price of iron ore, Australia's most valuable export. Spot iron ore has dropped below $100 a tonne, reaching lows not see since September 2012.
The New Zealand dollar also softened in tandem with its Aussie peer, plumbing a three-week low of $0.8560.
It edged lower against the yen and euro as well.
Traders said a combination of risk aversion, sympathy selling with the Aussie and lower milk prices could prompt more investors to pare bets for a stronger kiwi, which have been piling up since earlier this year.
In this month's second auction held by New Zealand's Fonterra Co-operative Group, international milk prices fell, while volumes dropped. The dairy sector generates more than 7 percent of the nation's gross domestic product.
"There's still quite a lot of speculative longs sitting in kiwi, which have not been cleared out yet, so we could see a move down to $0.8500 or a bit lower if we get that selling," said Tim Kelleher, head of institutional FX sales at ASB Bank in Auckland.
Still, traders said the prospect of further increases in domestic interest rates may limit significant selling below $0.8500. Long-term technical support lay at $0.8517, the 23.6 percent retracement of the kiwi's August-May rally which cushioned selling in the currency on two occasions last month.
New Zealand government bonds rose, nudging yields 2 basis points lower at the long end of the curve. Australian government bond futures were also firmer with the three-year bond contract up 7 ticks at 97.240. The 10-year contract climbed 3 ticks to 96.325, having touched a fresh nine-month peak of 96.350.
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