SYDNEY—The Australian dollar softened Monday after weaker-than-expected Chinese manufacturing data raised concerns over the momentum of recovery in the world's second-largest economy and resource-rich Australia's biggest trade partner.
The preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 50.4 in February, compared with a final reading of 52.3 in January, because of weakness in global demand for Chinese exports as well as the Lunar New Year holidays, HSBC Holdings PLC said. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction.
The number knocked the Australian dollar to an intraday low of US$1.0262. At 640 GMT, the Aussie was buying to US$1.0280 from US$1.0310 late in local trade Friday.
"The reaction was probably not surprising given the weakness in the PMI," said HSBC's Australian Chief Economist Paul Bloxham. "In general I think there's a bit of downside risk to the Aussie dollar."
Part of that risk stems from an improvement in the U.S. economy, where investors are looking to a speech by Federal Reserve Chairman Ben Bernanke late on Tuesday for signs the Fed plans to continue to pump liquidity into the U.S. economy through its bond-buying program.
Investors are also eyeing the outcome of parliamentary elections that began in Italy Sunday, testing the country's appetite for economic reform after a year of austerity.
In Australia this week, capital spending data due Thursday will give an indication of firms' investment intentions for the financial year starting July 1. Australia's central bank has slashed interest rates in the past year to help spur growth in other parts of the economy as a decade-long mining boom loses momentum.
"If that [data] comes out on the soft side the Reserve Bank of Australia is more likely to need to give the non-mining sector more of a boost," Westpac WBC.AU +1.67% senior foreign exchange strategist Sean Callow said.
