The Australian dollar nursed losses against its US counterpart on Monday, weighed by uncertainty over China after the world’s second biggest economy posted a shocking trade deficit.
The shed around third of a cent to buy $US1.0526 in late trade, versus $US1.0567 in New York late Friday.
Traders cited selling from macro-funds, with talk of buying interest all the way down to $US1.0500.
Weak stocks in China, Hong Kong and South Korea as well a sharp drop in the yuan/USD also pushed the Aussie down.
Still, the Antipodean currency has displayed remarkable resilience to China’s huge $US31.5 billion trade deficit, which blew away forecasts of a $US5 billion deficit.
The Australian dollar’s modest losses were contained by a strong rise in Chinese imports from Australia.
The currency, however, could face more downward pressure offshore, where a large number of bears may take the terrible reading as further proof China is hitting speed bumps.
“It would not surprise me if the Aussie moved below $US1.0500 in London and New York… There may be a bit more softness in the Aussie and strength with the USD against most currencies,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
The Aussie was already under pressure on Friday after upbeat US payrolls data sent the USD sharply higher across the board as it lowered the chance of further stimulus from the US Federal Reserve.
The Fed holds its policy meeting on Tuesday.
“I don’t think the Fed will be as optimistic as markets expect…People are putting too much emphasis on the U.S. payrolls and not enough on what is happening elsewhere in the U.S. economy, for example income growth,” said Capurso.
Capurso said he did not expect the Fed to appear bullish and that could disappoint markets and push risk assets lower.
The Aussie also lost ground against the yen, falling 0.5 per cent to 86.65 yen but remained within reach of recent multi-month highs. It climbed to 88.0 yen earlier this month, levels not seen since May.
The Aussie has been a stellar performer against the yen this year, gaining a whopping 10 per cent, aided by recent easing by the Bank of Japan, which has made the yen the funding currency of choice for carry trades.