Australian Dollar Hits Fresh Six-Year Low Amid China Carnage

 
   By James Glynn 
 

        SYDNEY--The steady erosion of support for the Australian dollar in recent weeks continued in Asia Wednesday, as investors took flight amid further sharp falls in China's share prices and a plunge in the iron ore price.
        The coupling of the two events, against a backdrop of ongoing uncertainty over Greece's position with the euro beyond this weekend, saw the Australian dollar touch a fresh six-year low of US$0.7390 in early trading.
        At 0600 GMT, the Australian dollar was trading at US$0.7417, compared with US$0.7493 late Tuesday. At the start of the month, the Aussie was trading at just above US$0.7700.
        The Shanghai Composite Index fell as much as 8.2% in early trade. China's main stock benchmarks have lost more than a third of their value since highs in June, despite government efforts to hold back the selling.
        China has introduced fresh measures to restore investor confidence seemingly to little avail. Stocks and Chinese bonds traded offshore are getting dumped. China's yuan, freely traded in the offshore market, hit a four-month low against the U.S. dollar amid a dimming outlook for the world's second-largest economy.
        China is Australia's biggest trading partner buying huge amounts of iron ore for its steel mills. The collapse in confidence comes as the economy has been slowing for some time. Spot iron ore fell 4.4% Tuesday to US$49.70/ton, according to The Steel Index.
        Elias Haddad, currency strategist at the Commonwealth Bank of Australia said narrowing interest rate spreads between Australian and U.S. government bonds was making local debt less attractive, adding to downward pressure on the Australian dollar.
        Paul Dales, chief economist at Capital Economics said the current global climate supported his expectation that the Reserve Bank of Australia will lower official interest rates another 50 basis points in coming months.
        It is possible that next year the Aussie dollar will be worth US$0.65, compared with US$0.74 now, he added.
        "The bottom line is that we think the Antipodean currencies will struggle for a while yet," he adds.
        Meanwhile, investors will have to wait until Sunday for more on Greece as eurozone leaders set that day as a deadline to come up with new and even-tougher economic measures if the country wants to avoid defaulting on the European Central Bank and crashing out of the currency union.
        German Chancellor Angela Merkel said Tuesday's emergency summit of eurozone leaders that it is up to Greece to act.
        -Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        July 08, 2015 02:21 ET (06:21 GMT)

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