SYDNEY (Dow Jones)--The Australian dollar was hurt by a sharp fall in Shanghai's bourse Tuesday as investors speculated authorities in China could ramp up efforts to damp demand with tighter policy. But dealers don't expect the Aussie, a classic proxy for the high growth Asia trade, to quicken the pace of its decline.
"I don't think we're going to get a collapse. A lot of the positioning has been reduced, I don't think we're in danger of a massive liquidation like we were before," BNP Paribas currency strategist Robert Ryan said.
At 0503 GMT, the Australian dollar traded at US$0.9612, down from US$0.9627 late Monday. Against the Japanese yen, the currency traded at Y80.845, from Y80.95. In the bond market, the December 3-year bond futures contract rose seven ticks.
The focus now for dealers is on Wednesday's domestic growth numbers. The commodity-rich economy looks likely to escape a third quarter contraction thanks largely to a stronger-than-expected trade performance and a continuation of government construction spending, a hangover from earlier stimulus. Economists earlier in the week feared a contraction, the first since the end of 2008, as weak company profits and inventory levels pulled growth down.
But data Tuesday showed net exports, the value of a country's total exports minus the value of its total imports, wasn't a weak as expected. Net exports will cut 0.4 percentage points off growth in the third quarter, half what had been anticipated.
The market now expects growth in the third quarter of 0.4%, putting the annual pace of expansion at a healthy 3.4%, according to a survey of 18 economists by Dow Jones Newswires.
Relief about the economic growth outlook was supported by a report showing building approvals grew 0.9% in October, well above expectations and the first rise in the data series in 6 months.
Expectations the Reserve Bank of Australia may not need to tighten for some months at least prompted Merrill Lynch strategists to forecast the spread between 3-year and 10-year bond futures implied yields to widen in the short term. "We do see some short-term risk for the curve to steepen a bit more, but the back-end yield has already become attractive," they wrote in a note.
