WELLINGTON/SYDNEY: The Australian and New Zealand dollars struggled near seven-month lows on Tuesday after tumbling commodity prices and concerns over China's economy encouraged investors to further unwind long positions.
The Australian dollar slid below 89 US cents for the first time since early March, having shed nearly 5 percent so far this month.
It was last at $0.8880, not far from $0.8851 touched overnight.
Even a better-than-expected headline reading of China's manufacturing activity failed to cheer Aussie bulls. HSBC's flash PMI for the Asian nation rose to 50.5 in September versus forecasts of 50.
China is Australia's single biggest export market and investors often use the currency as a liquid proxy for China plays.
"That tells you quite a lot on how engrained the bearish sentiment is towards the Aussie dollar," said Ray Attrill, global co-head of FX strategy at National Australia Bank.
Not helping was a mixed picture painted by a deeper look at the HSBC survey.
Factory employment slumped to a 5-1/2-year low, suggesting China's economy was not out of the woods.
Undermining the Aussie was a big drop in the price of iron ore, Australia's top export earner, while nickel followed with a 3 percent tumble.
"We have a broadening out of the weak metal prices and that underpins issues about weakening demand and excess supply in a whole range of commodities," said Attrill, seeing the Aussie stabilising around 88 cents in the near-term.
Immediate support was found around $0.8860, and a break of $0.8851 could target a retracement to this year's trough of $0.8660.
Dealers cited sellers between $0.8900/20 with a few stops eyed above $0.9025.
The New Zealand dollar shared a similar fate to its Aussie cousin.
It was last at $0.8114, having been unable to hold gains after the country's ruling National party won a third term in government at the weekend's election.
The kiwi eased versus most major currencies, retreating from two-month highs versus the Aussie and the yen hit on Monday. It was 0.2 percent lower versus a currency basket at 78.45.
The kiwi has fallen around 8 percent from a three-year high of $0.8839 hit in July, as its yield appeal has been tarnished by expectations that the country's central bank will pause its rate tightening cycle until early next year.
Investors awaited an annual results announcement from dairy co-operative Fonterra on Wednesday.
The world's top dairy exporter is expected to downgrade its milk price payout to NZ$5.50 ($4.46) or lower, which would cut farmer incomes and slow economic growth.
"If they come out with a forecast in the NZ$5.50 range we could find a little bit of support, if not a very mild bounce," BNZ currency strategist Raiko Shareef said, adding forecast in the low NZ$5.00 region may prompt a test of the year's low of $0.8052.
A payout forecast below NZ$5.00 "would see us below 80 US cents in pretty short order," Shareef said.
Initial support lay at $0.8117, the 61.8 percent retracement of its August 2013-July 2014 rally, while the next line of support lay at $0.8078, a trough touched earlier this month. New Zealand government bonds extended gains, pushing yields on medium-dated bonds 3 basis points lower while the 10-year yield slipped to a two-week low around 4.20 percent.
Australian government bond futures leapt, having recently touched multi-month lows.
The three-year bond contract rose 6 ticks to 97.170, while the 10-year contract added 7 ticks to 96.385.
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