This was published 9 years ago
Australian dollar slips on Fed minutes and soft China PMI
By Yolanda Redrup
Soft Chinese manufacturing data saw the Australian dollar drop below US86¢ on Thursday, putting the currency within reach of a fresh four-year low.
The dollar fell as far as US85.86¢ in afternoon trade, after opening under pressure locally as the market responded to the release of the latest US Federal Reserve minutes on its decision to end stimulus and plunging iron ore prices.
Late on Thursday afternoon the dollar was trading at US85.89¢, less than half a cent away from the four-year low of US85.41¢ the currency hit earlier this month.
HSBC's flash China manufacturing purchasing managers' index for November slipped to 50.0, down from 50.4 in the previous month and below analyst expectations.
"With consensus of 50.4 and falling short of expectations it saw the Aussie react and quickly break below yesterday's lows," ThinkForex senior markets analyst Matt Simpson said. The data had "added salt into the wound" of Wednesday's sell-off.
The spot price of iron ore at Qingdao port in China tanked to a fresh five-year low of $US70.20 a tonne, applying further downward pressure to the dollar.
The dollar also took a hit from the release of the Fed minutes early Thursday morning (Australian time), which indicated it remained on track to lift rates next year, despite concerns about falling inflation.
Commonwealth Bank chief currency and rates strategist Richard Grace said the Fed minutes showed the recent global economic slowdown had not affected its thinking.
"There was some speculation the slowing global economy could be a reason for them to delay the process," he said.
"But the Fed looks on track to continue with its normalisation policy and lift interest rates next year."
ANZ senior foreign exchange strategist Daniel Been said the minutes from the Fed meeting were "quite balanced".
"There seemed to be less weighting placed on the state of the external environment or on the impact of financial market volatility, while concerns about domestic inflation were weighed equally against improving growth dynamics," he said.
"There was a sense that the domestic pulse was becoming more robust."
The Fed minutes prompted the US dollar to hit a seven-year high against the Japanese Yen. The Australian dollar also continues to strengthen against the yen, trading at ¥101.76 on Thursday afternoon.
Jawboning by Reserve Bank of Australia governor Glenn Stevens earlier in the week has also kept the dollar low. He said interest rates could remain low for some time yet.
In a speech to the Committee for Economic Development Mr Stevens said monetary policy needed to effectively support the economy.
"The level of interest rates, although very low, is well warranted on macroeconomic grounds," he said.
Mr Grace said the dollar was unlikely to rise above US90¢ in the short term.
"Currently US89¢ is the topside and of course the trend is for a lower Australian dollar," he said. "Over the course of next year it will dip below US80¢ ... the timing will depend on when the US Fed raises rates, but we think it will be June next year."
Mr Grace said the dollar would be pushed lower as the market factored in the Federal Reserve raising interest rates.