Australia, NZ dollars benefit as Beijing tries to slow yuan slide

SYDNEY: The Australian and New Zealand dollars got a much-needed lift on Tuesday as China acted to slow a recent slide in its currency which had been pressuring the Antipodeans.

That was enough for the Aussie to add 0.5% to reach $0.6710, though it was still well short of the recent peak at $0.6900.

The kiwi dollar was a fraction firmer at $0.6178, and up from the week’s low of $0.6118.

The offshore yuan had hit a seven-month low early on Tuesday before bouncing slightly as the country’s central bank set a higher domestic fix than expected.

The Aussie is often used as a liquid proxy for the yuan given China is by far the biggest buyer of Australian resources and the world’s largest consumer of commodities.

Investors have become increasingly frustrated by the lack of a major new fiscal stimulus package from Beijing and suspect policy makers are content to use a weaker currency as a boost to its exporters.

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“We are bearish on AUD and remain long EUR/AUD,” said Anthony George, an analyst at NatWest Markets. “Latest data on manufacturing in developed countries have shown declining momentum in activity and increased concerns for global growth,” he added.

“This trend is also consistent with latest weak trade data from China.” Softness in Chinese steel output and real estate development was also weighing on prices for iron ore, Australia’s single biggest export earner.

Domestically, the Aussie did draw support early this month from a hike in interest rates by the Reserve Bank of Australia (RBA), but markets are divided on whether it will go again at its July policy meeting next week.

A lot will depend on monthly consumer price data for May due on Wednesday where median forecasts are for a slowdown in annual inflation to 6.1%, from 6.8%.

Analysts caution that much of the pullback will be due to a drop in volatile fuel prices and core inflation could prove stubborn.

That will put a focus on the trimmed mean measure, which rose to 6.7% in April, and CPI excluding volatile items and holiday travel which stood at 6.5%.

Futures currently lean against a hike next week, with a quarter-point move to 4.35% priced at 33%, but imply a risk rates could eventually peak as high as 4.6%.