The dollar could plunge as low as US80¢ in the next six months, the world's largest fund manager says, as the currency hit a patch of volatility on inflation and Chinese manufacturing data.
The currency was trading at a one-month high of US93.19¢ on Wednesday before falling about three-quarters of a cent to US92.44¢ after the weak Chinese data for July renewed fears of a hard landing for the world's second-largest economy.
Australian CPI data for the June quarter had at first pushed the dollar higher, with mixed figures keeping the door open for an August rate cut by the Reserve Bank. The dollar was buying US92.56¢ late on Wednesday.
The dollar has experienced a recent resurgence against the US dollar, after briefly slipping below US90¢ two weeks ago.
The US currency weakened on release of soft housing data, which reduces the possibility of a near-term pull-back of the Federal Reserve's stimulus program. The Australian dollar has been boosted by a rally in metals prices.
The wild swings on Wednesday came as fund manager BlackRock said a weakening Chinese economy and improving US data would reinforce the Australian dollar's downward trend.
"We prefer to be sellers of the Aussie dollar still," the investment company's Sydney managing director, Stephen Miller, said. "I would have thought that you're probably looking at US80¢ at some stage in the next six to nine months."
China's manufacturing sector fell to an 11-month-low this month, with the flash HSBC-Markit Purchasing Managers Index (PMI) at 47.7, missing economists' expectations of 48.2. It was also down from June's final reading of 48.2.
A reading below 50 indicates a slowdown, while a reading above 50 points to an expansion.
Nomura chief China economist Zhang Zhiwei said the components of the index suggested that "weakness in the domestic economy is intensifying" from a period of de-leveraging and tight monetary policy.
"The fall in the index is in line with our view of growth momentum fading further in the coming quarters," he said.
JPMorgan economist Tom Kennedy said the data supported the view that China was in a "significant slowdown", especially compared with the two-decades-long boom the country has experienced.
"If growth does continue in China at where it is at the moment in the vicinity of total year growth of 7.4 per cent, that would be the slowest pace of growth for a calendar year since 1990," Mr Kennedy said.
"On the numbers alone, they have been weak and there haven't been signs of life or lift over the past three to six months."
Mr Kennedy said the silver lining in the Chinese clouds was that further weakness in PMI and GDP data could spur the government to introduce economic stimulus.
The volatility in Asian financial markets, brought on by fears about China's slowdown, could also create opportunities for investors, funds manager AllianceBernstein said.
AllianceBernstein's chief investment officer, Stuart Rae, said consumer, technology, financial and real estate sectors were attractive. At the same time, the stability in south-east Asia had valued those stocks at 50 per cent above north Asian stocks.
"North Asian and south-east Asian countries are seeing broadly similar levels of earnings growth, but north Asian markets, and particularly China, are being de-rated substantially" Mr Rae said.
"Stocks in Korea, Hong Kong and China are becoming increasingly attractive."
UBS interest rate strategist Matthew Johnson said further declines in the Australian dollar due to softer data from China, Australia's biggest trading partner, would not deter the Reserve Bank from future interest rate cuts, as the lower figures would also point to possible future weakness in the Australian economy.
"What would change the RBA's mind [from keeping an easing bias] is if the Australian dollar gets weak because the US economy is strong," Mr Johnson said.
"We want the Australian dollar to go down for good reasons, which is US strength. We don't want it to go down for bad reasons because of China weakness."
NAB senior currency strategist Emma Lawson expected the dollar to trade within its recent range of US90¢ to US93¢, with a possible short-term bounce above US93¢ as investors hold record short positions on the currency.