The Australian dollar fell sharply in Asian trading yesterday on news that economic growth in China, Australia's largest trading partner, was much slower than expected in the first quarter of this year.
At 5pm AEST, the dollar was buying $US1.0433, down US1.13c. It dipped as low as $US1.0417 immediately after the China data.
Chinese gross domestic product grew 7.7 per cent on a year-on-year basis in the first quarter, down from 7.9 per cent growth in the fourth quarter of last year and below many economists' forecasts.
The median GDP growth forecast of 14 analysts polled by The Wall Street Journal was 8 per cent.
Economists said the sharp drop in the Australian dollar underscored once again the country's hypersensitivity to events in China, with some arguing it raised the likelihood of a further interest rate cut this year.
Andrew Salter, a currency strategist at ANZ Bank, said the Reserve Bank of Australia had a well-defined easing bias, and the China data would only strengthen it. "It will bring the RBA back into play, especially if first-quarter inflation data next week is low," Mr Salter said.
The RBA's next policy meeting will be held on May 7. The decision to keep the official cash rate steady at 3 per cent since December has been based partly on a solid economic recovery in China.
Shares in Australia and across Asia fell sharply in response to the China data.
Greg Gibbs, a currency strategist at RBS in Singapore, said that with Chinese authorities moving to contain loan growth and restrain property market speculation, there were now "significant downside risks for the Chinese economy".
China buys vast quantities of iron and coal from Australia. Any hint of weakening in China's growth will therefore have immediate consequences for commodity prices, and Australia's growth outlook.
David Scutt, a currency trader at Arab Bank, said China's growth weakness was a reason to abandon any thought that the Australian dollar would continue to rise.
"The reasons to hold it, let alone buy it, at these lofty levels have entirely vanished," Mr Scutt said. "We have a currency that's entirely overvalued."
Earlier yesterday, the Australian Bureau of Statistics reported that Australian home-loan approvals rose a seasonally adjusted 2 per cent in February from January. Economists had expected a gain of 1.5 per cent.
"House prices have risen solidly so far this year in most capital cities and, with consumer confidence trending higher and no rate rises on the horizon, we should continue to see gains in housing finance in coming months," said National Australia Bank senior economist Spiros Papadopoulos.