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 China reported its economy grew slightly faster than expected in the
second quarter but some investors remain cautious about its
prospects for further expansion without another burst of government
stimulus.
Solid gains for the U.S. dollar weighed further on the Antipodean
currencies. The greenback rose strongly, especially against the
euro, after Federal Reserve chief Janet Yellen said on Tuesday that
rates could rise sooner than expected if U.S. employment improved.
In contrast, the European Central Bank is set to keep policy very
loose to ward off risks of disinflation in the euro zone.
The pound rose to a two-year high against the euro after data
showing the slowest British wage growth on record did little to
alter expectations the Bank of England will tighten policy in coming
months.
Sterling fell against the dollar to $1.7130, off a nearly six-year
high of $1.6192 struck on Tuesday, helping push the dollar index up
0.2 percent to 80.556, its highest level in a month.
"The main driver to the dollar has been Yellen's less-than-dovish
comments," Nordea FX strategist Niels Christensen said.
"The Chinese data also has not been able to provide any support to
the Australian dollar, while the euro is also weaker. But more good
news from the U.S. is needed for the euro to break below $1.35."
The Australian dollar - seen as proxy for China plays because the
world's No. 2 economy is Australia's largest trading partner - shed
0.25 percent to $0.9350 following the Chinese GDP release. Analysts
said that might be because China's National Bureau of Statistics
also said a downturn in the property market could create downward
pressure on growth.
In New Zealand, the kiwi weakened after a report showed the annual
inflation rate reached 1.6 percent in the second quarter versus
expectations of 1.8 percent. That was well within the Reserve Bank
of New Zealand's (RBNZ) target range.
The data may take the pressure off the RBNZ to tighten policy much
more this year, although another quarter-point hike next week seems
a done deal.
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The kiwi dropped on the data to a low of $0.8690, pulling further
away from a recent high of $0.8839 and its post-float peak of
$0.8842 set in August 2011. It last traded down 0.8 percent at
$0.8700.
The kiwi had already felt the effects of a decline in global milk
prices and a drop in volumes at an auction held by New Zealand's
Fonterra Co-operative Group.
EURO AT LOWS
The euro was down 0.3 percent at $1.3530, falling to its lowest in
one-month, while the greenback was slightly higher at 101.75 yen
after touching a one-week high of 101.77.
The Fed's Yellen is due to speak again later in the day. At a Senate
committee hearing on Tuesday, she defended the Fed's loose monetary
policy, saying the recovery was not yet complete.
Yellen said early signs of a pick-up in inflation were not enough
for the Fed to accelerate plans to raise interest rates, but
conceded that this might change if labour markets improved more
quickly than expected.
"U.S. data should see a good June industrial production figures and
later in the day the focus will move to the Fed's Beige Book," said
ING's head of currency strategy Chris Turner.
"Any sign that wages are rising, refuting the Fed's belief of slack
in the labour market, could be positive for U.S. swap rates and the
dollar."
(Additional reporting by Lisa Twaronite; Editing by Catherine Evans)
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