SYDNEY: The Australian dollar slipped on Thursday as data showing a sharp decline in Chinese exports fuelled a broader risk-off move and eclipsed a A$7.6 billion ($5.8 billion) government bond auction that attracted record offshore demand.
The Australian dollar fell to a 3-1/2 week low of $0.7518 after the Chinese data. It rose 0.3 percent on Wednesday thanks to strong investor demand for the 2047 bond which received bids in excess of A$13 billion.
But the mood soured on Thursday after data showed Chinese imports contracted anew in September while exports dropped by a steep 10 percent.
At 0400 GMT, the Aussie, a proxy for China plays, was down 0.4 percent at $0.7532. The hit was cushioned somewhat as imports of key commodities from Australia - iron ore and coal - were firm. China is Australia's No.1 trading partner.
Some analysts said the soft data raised concerns that China may pursue a weaker currency policy in the coming months, stoking deflationary pressures for the rest of the region.
"The continued underwhelming performance of Chinese exports adds weight to our view that the People's Bank will maintain its recent policy of gradual trade-weighted renminbi depreciation in coming quarters," economists at Capital Economics wrote in a note.
The Aussie slipped on the yen as well as the euro , due to the fresh concerns about the health of world's second biggest economy.
Traders, however, expect the Aussie to be supported by demand for the country's resources, given the price of coking coal, a key export to China, surged 115 percent since August.
"Very rough back of the envelope calculations suggest that could boost export earnings by up to A$1 billion a month, and potentially halve the monthly trade deficit," said Tapas Strickland, economist at National Australia Bank.
The New Zealand dollar languished near 2-1/2 months lows at $0.7058, continuing its lacklustre performance.
The kiwi has risen in just one out of the last 10 sessions. Expectations of an interest rate cut this year have only grown after the country's central bank warned that further policy easing would be needed to stoke inflation.
New Zealand government bonds rose, sending yields down about 5 ticks at the long-end of the curve.
Australian government bond futures were higher too, with the three-year bond contract up 5 ticks at 98.34. The 10-year contract rose 6.5 ticks to 97.785.
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