The Australian dollar fell on Thursday, as selling by model-based funds weighed on the currency against the yen, while it took in stride data that pointed to a mild slowdown in China, rather than a deeper one as some had feared.
The Australian dollar slid in early Asian trade after the China Securities Journal reported the Chinese economy may lose momentum more than expected later this year.
It temporarily pared losses following the release of Chinese official data but soon started to ease again on the selling by model-based funds, traders said.
"The data has attracted much attention but at the end of the day it wasn't far from market expectations. It showed the Chinese economy is slowing down, but that's what markets have been looking for," said Hideaki Inoue, manager of foreign exchange at Mitsubishi Trust and Banking Corp.
At 1700 AEST, the Australian dollar was trading at $US0.8785/87, up from Wednesday’s close of $US0.8815/18.
Since 0700 AEST, the dollar traded between $US0.8762 and $US0.8848.
It also dropped 1 per cent to 77.28 yen, and was recently 68.9 euro cents and 57.5 pence.
The euro erased its losses to change hands at $US1.2722, not far from its two-month high of $US1.2778 hit on Wednesday as traders bought back the currency. Long dogged by worries over euro zone debt problems the euro tends to benefit from rising risk appetite.
China's economic growth slowed to 10.3 per cent in the second quarter from 11.9 per cent in the first quarter in response to the fading effect of government fiscal and monetary stimulus as well as a high base of comparison a year earlier.
With Chinese data out of the way, the market's focus is likely to shift back to the strength of the US economy, traders said.
Investors will look to a raft of US data due later in the day, including industrial output, jobless claims and regional business activity, for clues to the health of the world's biggest economy.
"U.S. data will be a very important market-moving factor today, especially after the minutes from the Federal Reserve's last meeting fanned speculation of further policy easing," said Hideki Hayashi, a global economist at Mizuho Securities.
Fed officials slightly revised down their outlook for economic growth in the second half of the year, while minutes from the central bank's June 22-23 meeting said the officials would need to consider whether "further policy stimulus might become appropriate if the outlook were to worsen appreciably".
The Commerce Department reported on Wednesday that US retailers' June sales declined 0.5 per cent - more than twice the 0.2 per cent drop forecast by economists polled by Reuters.
That sapped some of the optimism triggered by strong US corporate earnings being released this week, leaving the US dollar near a two-month low on a basket of currencies.
The dollar index stood at 83.344, down 0.1 per cent on the day and not far from a two-month low of 83.205 hit on Wednesday.
The index is holding just above support at around 83.15, a 38.2 per cent retracement of its rise from a low of 74.17 in November 2009 to a high of 88.59 on June 8.
Against the yen, the US dollar slipped 0.3 per cent to 88.13 yen.
Charts looked increasingly bearish for the dollar after the greenback failed the previous day to rise above 89.23 yen - a 38.2 per cent Fibonacci retracement of the US dollar's fall from its June high of 92.68 yen to a July 1 low of 86.96 yen, traders said.
The Bank of Japan said on Thursday it expected the economy to grow at its fastest pace in a decade in the year to March 2011, but said the euro zone debt crisis could pose a risk to the outlook.
The central bank kept interest rates unchanged at 0.1 per cent, as widely expected.
Sterling was little moved on the day at $US1.5266, staying near a 10-week high of $US1.5298 hit the previous day.
Better-than-expected British employment data released on Wednesday added to speculation that the Bank of England may have to start considering raising interest rates.
Reuters with AAP