Aussie dollar bears emboldened by China data, others calmer

15/09/2014 09:23 AST

(Reuters) - The Australian dollar slid to a six-month low on Monday as worries about slower Chinese growth hit a nerve, but other major currencies held their ground ahead of this week's Federal Reserve policy meeting.

Investors took aim at the Aussie, usually used as a liquid proxy for China plays, after data on Saturday showed factory output in Asia's economic powerhouse grew at the weakest pace in nearly six years in August. Growth in other key sectors also cooled.

The Aussie briefly dipped below 90 U.S. cents for the first time since March 20, before edging back up to $0.9010 AUD=D4. It has tumbled four cents in the past week.

Traders said the speed and depth of its recent decline and the proximity to major support levels seen just under 90 cents may have saved it from a more pronounced reaction to the Chinese data.

In contrast, the other major currencies were a sea of calm, partly reflecting a slow session due to a holiday in Japan.

The greenback held just below a six-year peak of 107.39 yen JPY= set on Friday. The euro was steady at $1.2965 EUR=, having drifted up from a 14-month trough of $1.2859 last week.

That left the dollar index .DXY little changed at 84.182, still in consolidation mode after a rally to a 14-month peak of 84.519 on Sept. 9 ran out of steam.

The U.S. dollar has been on a tear in recent weeks as markets brought forward the risk of a earlier interest rate hike by the Federal Reserve, partly as data continued to suggest a sturdy recovery in the U.S. economy.

The latest reports on Friday showed a broad rise in U.S. retail sales in August, while consumer sentiment hit a 14-month high in September.

As a result, U.S. Treasury yields have risen and that, in turn, has boosted the appeal of the greenback. Just last week, the benchmark 10-year yield US10YT=RR posted its biggest weekly rise in over a year.

"The key question surrounding this week's policy event is whether a widely expected change in FOMC forward guidance is sufficient to re-fuel USD buying," Credit Agricole analysts wrote in a note to clients.

"Having witnessed an already large shift in USD positioning... our answer is no. Indeed while we forecast USD strength to continue throughout Q4, USD demand appears to have gotten ahead of itself with longs (temporarily) over-extended."

The Fed holds its policy review on Sept. 16-17.

Sterling remained on tenterhooks just days out to the Sept. 18 referendum on independence for Scotland, with polls showing both "Yes" and "No" camps pretty much neck-and-neck.

A win for the "Yes" campaign could result in the end of the 307-year-old union with England and the break-up of the United Kingdom.

The pound was a touch softer on Monday at $1.6243 GBP=D4 and remained vulnerable after last week's drop to a 10-month low of $1.6052.

Reuters