The Australian dollar lost ground on Wednesday as confidence in the prospects of a global recovery were dented.
Reduced risk appetite was triggered by a sharp fall in Chinese stocks.
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Chinese equities were down more than 5 per cent after reports that China’s two biggest state-owned commercial banks had put a lid on their 2009 lending targets.
According to the reports, if these banks stick to these targets, they would have already issued close to 80 per cent of the full-year lending total.
This followed a reports earlier in the week that Chinese regulators has instructed banks to ensure unprecedented volumes of new loans are channelled into the real economy and not diverted into equity or real estate markets where officials say fresh asset bubbles are forming.
David Woo at Barclays Capital said the prospect of a Chinese slowdown was most likely to affect the Australian dollar, given the commodity-rich Australian economy’s reliance on Chinese growth.
“Within major economies, the currency most sensitive to Chinese prospects is the Australian dollar,” he said. “The news has weighed on it but given our constructive medium-term view on China, we expect any weakness against the dollar to be temporary.”
Indeed, on Tuesday, the Australian dollar posted a fresh high for the year against the dollar after the Reserve Bank of Australia hinted that its economy would be among the first to emerge from the financial crisis and that interest rates might rise sooner than had previously been expected.
But the Australian dollar suffered on Wednesday, falling 0.9 per cent to $0.8194 against the dollar and losing 0.5 per cent to Y77.65 against the yen.
Other commodity-linked currencies also suffered. The Canadian dollar lost 0.6 per cent to C$1.0868 against the dollar, the New Zealand dollar eased 0.2 per cent to $0.6564 and the South African rand dropped 0.4 per cent to R7.8530.
Meanwhile, declining risk appetite also drove haven demand for the dollar.
The dollar rose 0.3 per cent to Y94.71 against the yen, climbed 0.5 per cent to $1.6345 against the pound and gained 0.2 per cent to $1.4140 against the euro.
