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The dollar and the yen rose against other major currencies as risk appetite faded on Friday following weak growth figures from China that spurred concerns about the health of the global economy.
The euro fell 0.3 per cent to $1.2261 to end the week on a low point after China revealed that both export and import growth slowed in July.
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The Australian dollar was the hardest hit of the major currencies, in part due to the country’s strong trade links with China.
The Aussie fell 0.7 per cent against the US dollar to $1.0497 and was 0.9 per cent lower against the yen at Y82.322.
But Australia’s currency was also undermined after the Reserve Bank of Australia sounded a note of caution in its monthly monetary policy report.
The RBA said the “persistently high” level of Australia’s exchange rate could be having a negative effect on the economy, noting also the Aussie dollar’s rise in recent weeks in spite of falling commodity prices and gloom on global economic growth prospects.
The central bank stated that the popularity of the currency “may in part reflect increasing international demand for highly rated Australian dollar securities”.
However, foreign exchange analysts were not convinced the comments signalled a rate cut was likely from Australia – which currently has the highest yields of any industrialised nation at 3.5 per cent.
“We stick to our view that interest rates have bottomed as long as the debt crisis does not escalate and growth in China collapses,” said analysts at Commerzbank.
The pound continued to weaken for the second day following strong gains on Wednesday after the Bank of England signalled a further interest rate cut was unlikely. Sterling slid 0.3 per cent to $1.5578 against the US dollar.
The Canadian dollar pared some of its gains amid rising risk aversion as the US dollar rose 0.3 per cent to C$0.9937.
The Canadian dollar had strengthened during the week, helped by comments from Mark Carney, governor of the Bank of Canada, on the relative strength of the Canadian economy that reduced expectations of any monetary easing in the country.
