Investing.com - The Aussie dipped on Wednesday after Moody's Investors Service on Wednesday downgraded China's credit rating to A1 from Aa3, changing its outlook to stable from negative, citing expectations that China's financial strength will erode somewhat over the coming years.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.03% to 97.25.
AUD/USD fell 0.24% to 0.7462 with China a top trading partner, while CNY/USD slipped to 6.8901, 0.1% below late U.S. levels. USD/JPY changed hands at 111.79, up 0.01%.
"Moody's expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage," Moody's said in a statement. "The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole."
It expected that while economic growth would remain relatively high, potential growth rates were likely to fall in the years ahead.
Moody's estimated that while the government budget deficit in 2016 was "moderate" at around 3% of gross domestic product (GDP), it expected the government's debt burden would rise toward 40 percent of GDP by 2018 and 45% by the end of the decade.
Overnight, the dollar bounced off the lows Tuesday, despite the release of mostly downbeat economic data, fuelling concerns that slowing economic growth would deter the Federal Reserve from adopting an aggressive rate hike policy.
Investors mulled over the release of a raft of economic data, as better than expected services business activity offset manufacturing and housing data that fell short of expectations.
IHS Markit flash U.S. manufacturing purchasing managers index (PMI) fell to its lowest level in eight months with a reading of 52.5, while its services (PMI) soared to a four-month high with a reading of 54, which was above economists’ forecasts.
A reading above 50 indicates expansion in the sector; below 50 indicates contraction.
In a separate report on Tuesday, the Commerce Depart said sales of newly constructed homes fell in April to a seasonally adjusted annual rate of 569,000. That was below analysts’ estimates of a drop to 610,000.
Meanwhile, in the UK, GBP/USD weathered a terrorist attack in Manchester, England, to trade roughly flat against the dollar. Sterling came under pressure at the start of the week, after polls over the weekend showed the Labour Party had narrowed the large lead that had been enjoyed by the Conservative Party.
The euro is one the best performing currencies against the dollar, up nearly 7% year-to-date, as Emmanuel Macron's election victory against anti-EU Marine Le Pen, earlier this month, quelled fears that France would exit the European Union.