SYDNEY, Sept 7 (Reuters) - The Australian dollar was set to test its July low on Wednesday, as a surging U.S. dollar, underwhelming Chinese trade data and sliding global stocks emboldened the bears, while solid growth data at home offered little comfort.
The Aussie AUD=D3 slid 0.4% to $0.6705, after having tumbled 1% overnight, as strong U.S. services sector data fuelled more bets for aggressive Federal Reserve rate hikes, lifting the safe-haven greenback.
The currency is also within a whisker of its July low of $0.6683. A break there would take it back to levels not seen since May 2020, when financial markets were thrown into chaos as the COVID-19 pandemic spread.
But the Aussie gained 0.5% against the Japanese yen to hit its highest since July, as the Japanese currency continues to be weighed down by the Bank of Japan's ultra-easy monetary policy.
The Kiwi NZD=D3 fell 0.7% on Wednesday to $0.5998, its lowest level since May 2020. That came on top of a 0.8% plunge overnight.
Risky assets took a beating overnight after data showed the U.S. services industry unexpectedly picked up last month, reinforcing expectations for another super-sized 75 basis-point rate rise on Sept. 21.
China's disappointing trade data and rapid currency decline also weighed on the Aussie. The Aussie is often sold as a liquid proxy for the Chinese currency.
Exports from the world's second largest economy weakened in August, with exports rising 7.1% year-on-year versus an 18.0% increase in July, while imports eked out a meagre 0.3% gain, data showed on Wednesday.
The yuan CNY=CFXS also hovered near the psychologically important level of 7 per dollar.
"The deteriorating global economic outlook, particularly in Europe and China, will be a weight on AUD. The Australia-U.S. interest rate differentials will also shift further against AUD/USD if our view on the RBA pans out," said Carol Kong, associate for currency strategy at Commonwealth Bank of Australia (CBA).
CBA analysts said on Tuesday they expect the RBA will slow the pace of rate hikes and that a pause in the tightening cycle may not be too far away, following another 50 basis point hike in the official cash rate this week.
"We maintain our forecast for AUD/USD to trend lower to a range of 0.60-0.65 in the first half of 2023. In the current fragile risk environment, the US equity markets can offer a useful signal for the direction of AUD/USD."
Solid economic data at home failed to cheer up the Aussie. Australia's economy expanded 0.9% in the June quarter, largely in line with market expectations and offering hope activity can weather sharply higher interest rates and cost-of-living pressures.
Australia's ten-year yield AU10YT=RR climbed 8 basis points to 3.757%, following a spike in U.S. Treasury yields, while the three-year yield AU3YT=RR rose by a smaller 4 bps to 3.359%.
