Credit rating warning as dollar hits new six-year low

THE Australian dollar has slumped to a fresh six-year low after unexpectedly poor Chinese manufacturing figures and battered commodity prices delivered a hammer-blow to the local currency.

Separately, credit ratings agency Standard & Poor’s reaffirmed Australia’s coveted triple-A rating but warned it could be lowered if the nation failed to stick to its budgetary reforms.

The Aussie was fetching US72.91¢ late yesterday – its lowest mark since April 2009 – having shed almost US1¢ after preliminary Chinese manufacturing figures for July revealed activity had slumped to a 15month low.

The Purchasing Managers’ Index, now sponsored by Chinese financial publication Caixin after previously appearing under British bank HSBC, fell 1.2 points to 48.2.

The median estimate in a Bloomberg survey was for an increase to 49.7. Numbers below 50 indicate contraction.

The index offered fresh evidence that despite Beijing’s best efforts, including four interest rate cuts since November, the Chinese economy is battling for traction. The Aussie was already on the back foot after a host of key commodities, including iron ore, crude oil, aluminium and copper lost ground overnight on Thursday.

Foreign exchange experts said the currency now had enough factors to fall below US70¢ this year.

“The mix of poor Chinese data, weak commodity prices and the prospect of an AA rating seems like the perfect storm for Aussie dollar depreciation,” IG Markets strategist Chris Weston said.

The dollar yesterday crumbled against other currencies too, slipping to ¥90.3 and below 47 British pence for the first time since March 2009 in a hit for travellers.

“The Aussie has been savaged and if your preference is to follow a good old-fashioned trend, the British pound-Aussie dollar cross-trade is what dreams are made of,” Mr Weston said.

Westpac chief currency strategist Robert Rennie said risks of a drop towards US70¢ “are building”.

Rating agency S & P also gave a mixed assessment of Australia’s fortunes, saying while it had the policy framework to absorb significant financial shocks, its growth prospects had become increasingly dependent on Chinese demand.

S & P said its stable outlook was predicated on Australia being able to gradually whittle away at its budget deficit but expressed concern at the amount of measures held up in the Senate.

“We could lower the ratings if Australia’s budgetary performance does not improve broadly as we currently expect,” it said in a statement.

“Continued parliamentary gridlock on the Budget could trigger this scenario, as could an external shock.”