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The Australian dollar hit a nine-month low against the US dollar Monday.
- The Australian dollar has hit a nine-month low
- There are growing concerns about the health of China's economy
- Global investors are on edge as another major Chinese investment firm shows signs of stress
It fell to 64.59 US cents before recovering in afternoon trade to 64.8 US cents.
“The Aussie has fallen four weeks in a row, battered by the RBA’s dovish turn, angst over China and a solid US dollar,” Westpac senior currency strategist Sean Callow said.
“It is at risk of a slide below 64 cents if investor concerns deepen over China’s property market or the July activity data disappoints (due 12pm, Tuesday).”
There have been concerns over China’s economic strength for some time.
“Chinese economic data continues to disappoint,” AMP’s chief economist Shane Oliver noted.
“Bank lending and credit came in much weaker than expected in July and the slump in exports and imports worsened with exports down 14.5 per cent year on year and imports down 12.4 per cent year on year with the latter indicating weak domestic demand.
“Meanwhile, China slipped back into deflation [or falling prices] with the CPI down 0.3 per cent year on year and producer prices down 4.4 per cent year on year.
“It’s not quite as weak as it looks as core CPI inflation [which strips out volatile items] edged up slightly but it’s still weak.
“Despite ongoing indications of soft growth, details of actual policy stimulus remain weak and policy announcements have been modest,” Dr Oliver said.
In other words Dr Oliver is concerned the Chinese Communist Party hasn’t yet acted decisively enough to arrest concerns about the health of the world’s second biggest economy
And now there have been fresh worries about a Chinese asset management firm, Zhongzhi Enterprise Group.
It has about 1 trillion yuan ($US138 billion) in assets under management.
Two of its clients have reported the firm delayed payment of maturing wealth products.
In simple terms that means investors are overdue to receive income from their investments.
It suggests this large investment firm is running short of cash.
The Australian dollar is also under pressure as commodities prices, including iron ore, fall in value.
The stock exchange’s largest mining companies including BHP, Rio Tinto and Fortescue Metals Group all fell near or over 2 per cent today.
It helped drag the S&P/ASX200 down 0.86 per cent by the close of trade.
A “risk off” financial trading environment is developing across the globe, which is a fancy way of saying international investors are nervous about the foreseeable future and that has put downwards pressure on the Australian dollar.
The local currency is seen as a barometer of investment risk globally.
“The $A is at risk of more downside in the short term, but a rising trend is likely over the next 12 months, reflecting a downtrend in the overvalued $US and the [US] Federal [Reserve] moving to cut rates,” Dr Oliver said.