The safe-haven US dollar bounced on Monday while commodity-sensitive currencies including the Australian dollar tumbled after a new batch of disappointing Chinese data bolstered global recession worries.
Chinese industrial output, retail sales and fixed-asset investment all fell short of analyst estimates in data published on Monday, as a nascent recovery from draconian COVID-19 lockdowns faltered.
Commodities including iron ore slumped on concerns about reduced demand from China, which hurt currencies exposed to the assets, including the Australian dollar.
“Concern about Chinese demand for commodities…at the margins it’s probably encouraging a risk off attitude,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
The US dollar index gained 0.79% to 106.52. The euro eased 0.97% against the dollar to $1.0157.
The Australian dollar, which is also viewed as a proxy for global growth, dropped 1.43% to $0.7021.
The New Zealand dollar fell 1.45% to $0.6363. The offshore yuan hit 6.8197, the weakest since May 16, after China’s central bank cut key lending rates in a surprise move to revive demand.
The dollar index has fallen from a 20-year high of 109.29 on July 14 on hopes that the Federal Reserve will slow its aggressive pace of rate increases and that the worst of inflation increases may be behind us.
Concerns that the Fed tightening will send the economy into recession has also sent US Treasury yields lower.
However, Fed officials have maintained a hawkish tone and stressed it is too soon to declare victory on inflation.
“The Fed is telling us they want to tighten financial conditions and the market has eased them, so the Fed is going to have to drive home its point with a larger rate hike,” said Chandler, adding he expects the US central bank to raise rates by 75 basis points at its September meeting.
Data this week including industrial production on Tuesday and retail sales on Wednesday could also “help ease fears that the US contracted again,” Chandler said, which would boost the greenback.
US single-family home builders’ confidence and New York state factory activity fell in August to their lowest levels since near the start of the COVID-19 pandemic, data on Monday showed.