SYDNEY: The Australian and New Zealand dollars struggled to extend recent gains on Thursday as disappointing Chinese inflation data underlined the economic problems plaguing the Antipodeans' largest trading partner.
China's consumer price index rose a smaller-than-expected 0.3 per cent in January month-on-month and the annual pace fell to minus 0.8%, the weakest reading since September 2009.
While all of the fall in the CPI was due to food, largely pork prices, producers also saw continued disinflation which will be squeezing profit margins.
That will keep pressure on stocks which had bounced for two sessions straight as Beijing made some efforts to stabilise the market ahead of the Lunar New Year holidays.
The jury is very much out on whether these measures will be enough in the long run given investor concerns over the economy.
The long slide in Chinese stocks has been a drag on the Aussie given its status among international investors as a liquid proxy for China's economic fortunes.
That left the Aussie at $0.6528, having bounced 0.6 per cent the previous session in the wake of a drop in U.S. yields. Support lies around $0.6469 with resistance at $0.6540 and $0.6574.
The kiwi dollar rose a fraction to 0.6120, after rallying 0.7 per cent overnight to as far as $0.6124.
"AUD ranges are likely to be fairly tight into early next week, with Lunar New Year holidays starting, and the U.S. data focus firmly on Tuesday's January CPI," noted Sean Callow, a senior FX analyst at Westpac.
"We look for AUD to find support in the mid-$0.65s, capped ahead of $0.6600. Our multi-week preference is to sell rallies in the low $0.66s, with scope for $0.63-0.64 later in Q1."
The next hurdle for the Aussie will be testimony from Reserve Bank of Australia (RBA) Governor Michele Bullock before a parliamentary economics committee on Friday.
The central bank kept rates steady at 4.35 per cent at its policy meeting this week but warned it might yet have to hike again if domestic inflation proved too stubborn.
Markets seriously doubt they will tighten, but have nudged out the likely timing of the first cut. A move in June has declined to a 44% chance, with August put at 88 per cent. - Reuters