By Charlotte Greenfield and Gyles Beckford
SYDNEY/WELLINGTON, July 24 (Reuters) - The Australian dollar dropped to its lowest in six years on Friday after disappointing China manufacturing data put further pressure on already ailing commodity prices.
The Aussie AUD=D4 fell as low as $0.7269 from the day's high of $0.7355 and was set for a weekly drop of 1.5 percent, its fifth week of losses. It was last at $0.7289.
The flash Caixin/Markit China Purchasing Managers' Index (PMI) dropped to 48.2, the lowest reading since April last year and the fifth straight month under 50. ID:nS7N0ZB006
Investors regularly use the Aussie as a liquid proxy for risk in China, Australia's biggest export market.
"There was pretty clear impact when that data came out," said Greg Gibbs, forex strategist at RBS.
"It was quite a decent miss, it's below expectations by over a point, which is a lot for PMI," he added.
The currency was also unsettled when Standard & Poor's said it might ultimately lower Australia's credit rating should the government's budget position not improve as it expects.
Yet the agency affirmed the triple A rating with a stable outlook, meaning there was no risk of a change anytime soon.
The New Zealand dollar NZD=D4 also slipped back to $0.6577 after a short-lived climb to $0.6695 overnight.
"We remain short NZD/USD from 0.6605, and happy to let the trade run...We remain of the view that any rallies will be sold into," said BNZ strategist Raiko Shareef in a note.
Near-term kiwi support is seen at $0.6560 with $0.6500 a more substantial base with resistance around $0.6650.
The Reserve Bank of New Zealand this week cut interest rates for the second time this year and a further quarter-point easing is seen as a virtual certainty for September. Analysts in a Reuters poll see the cash rate at 2.5 percent by the end of the year where it will stay through 2016. NZ/POLL
Not helping was local data showing a small trade deficit in June. which pushed the annual shortfall to its worst in six years. ID:nW9N0XB02B
New Zealand government bond yields 0#NZTSY= were as much as 8 basis points lower at the long end of the curve.
Australian government bond futures rose as the poor Chinese data added to the case for more policy easing. The three-year bond contract YTTc1 added 8 ticks to 98.100, while the 10-year contract YTCc1 rose 6 ticks to 97.1650. (Editing by Jacqueline Wong)