Australia, NZ dollars softer as sentiment blunted by China's regulatory crackdown

SYDNEY: The Australian and New Zealand dollars hovered on Monday near recent lows against the greenback as fears that China's regulatory crackdown could slow investment flows and even its economy dogged the risk-sensitive currencies.

The Aussie was 0.04% lower at $0.7343 as a recent survey showed factory activity in China grew at the slowest pace in 17 months in July.

That leaves the currency's next support levels at about $0.7317, in the vicinity of its July trough of $0.7289.

New Zealand dollar buoyed by yield surge, Aussie lags behind

"A more broad-based regulatory crackdown will likely accelerate foreign equity investment outflow from China and lead to a weaker CNH," Commonwealth Bank of Australia analysts said.

"Significant weakness in CNH can also weigh on AUD, because of its role as a proxy for emerging Asia."

Constantly shifting outbreaks of coronavirus and accompanying restrictions are also expected to keep pressure on the Aussie, with the Reserve Bank of Australia on Tuesday expected to reverse last month's decision to taper its weekly bond-buying programme.

The New Zealand dollar was also faltering, down 0.34% at $0.6953, its lowest since July 29, before recovering to stand at $0.6964. It faces stiff resistance at $0.7015 and $0.7050.

But traders expect second-quarter labour market data due on Wednesday to be a potential catalyst for gains in the kiwi if it adds pressure to the Reserve Bank of New Zealand to hike rates this month.

"The labour market report in New Zealand is expected to provide the final ammunition for the RBNZ to hike in August, while the RBA is expected to reverse its plans for taper amid a sharp slowing in the economy," said Richard Yetsenga, chief economist of Australia and New Zealand Banking Group.

Australian bonds were little changed, with the yield on the 10-year government benchmark one basis point lower at 1.179%. The three-year bond yield was also little changed, at 0.25%.

Across the Tasman Sea, New Zealand bonds were a little weaker, pushing yields one basis point higher across the curve.