The Australian and New Zealand dollars gave up two week's of gains on Tuesday, skittled by fears that coronavirus disruptions in China could hurt demand for commodities, just as Beijing is seeking to expand production at home.
The Aussie retreated all the way to $0.7183 AUD=D3 , having slid 1.5% overnight, below support at $0.7245. That left the recent four-month top of $0.7440 a distant memory, and threatened a retracement to as deep as $0.7090.
The kiwi dollar was down at $0.6742 NZD=D3 , after shedding 0.9% overnight to test support at $0.6740. Further support comes in around $0.6728 and $0.6682.
Commodity prices had already been cooled by hopes of progress in Russian-Ukraine talks, and took an added hit when Beijing locked down the city of Shenzen and imposed a movement ban on the province of Jilin.
The daily number of coronavirus cases jumped sharply on Tuesday, raising the risk of more restrictions.
"Industrial metals and iron ore are particularly susceptible to a slowdown in China," said analysts at CBA. "China accounts for 40-60% of base metal demand and 70-75% of the world's iron ore imports."
Iron ore is Australia's biggest export earner and prices had been running high in recent weeks amid expectations China would use infrastructure spending to support activity.
There were also reports Beijing would encourage a major expansion in domestic coal production to meet its energy needs, which pressured coal prices generally.
A slowdown in China would be an added complication for the Reserve Bank of Australia (RBA) as it wrestles with when to start raising interest rates.
Minutes of its March meeting showed it was still prepared to be patient on policy, but noted the conflict in Ukraine and the resulting spike in some resource prices was a shock to the global economy that would lift inflation and drag on growth.
Markets are wagering the inflationary impulse will be the stronger and force the RBA to hike the 0.1% cash rates as soon as June. Investors have also shifted to price in almost six rate rises this year, with December futures
0#YIB: implying 1.39%.Yields on 10-year debt AU10YT=RR shot to their highest since late 2018 at 2.508%, a rise of 40 basis points in just six sessions. Three-year yields AU3YT=RR have climbed 44 basis points in the same time to 1.86%.
