A rebound in the Australian dollar was not enough to stop the selloff among banks and miners on the local sharemarket on Thursday.
The benchmark S&P/ASX 200 slipped 36.4 points, or 0.7 per cent, to 5297.7. The broader All Ordinaries lost 36 points, or 0.7 per cent to 5298.5.
The local market took its lead from a weak session on Wall Street, where the S&P 500 index fell for a third day on the back of soft economic data, while the small-cap heavy Russell-2000 index slipped into a technical correction, down more than 10 per cent from recent highs.
Local investors are still reeling from a rough September which saw the ASX 200 drop more than 6 per cent, while overseas investors have continued to leave the Australian market as the local currency remains under pressure.
A lower Australian dollar was a long-term positive as it helped boost exports, supporting a fair chunk of the local market, but short-term investors were losing money from the falling currency, Tribeca Asset Management portfolio manager Sean Fenton said.
"There is also concern of a rate rise in the US, down the track, so there has been a bit of an unwind of the carry trade and for Australia that's pretty material in terms of some of the high-yield sectors that have seen flows from the carry trade offshore with a strong currency and high yields, along with self-managed super funds searching for yield," Mr Fenton said.
The Australian dollar jumped as high as US88.16¢ on Thursday, following solid building approvals data, and moved further away from a near-four year low the currency plumbed on Wednesday.
Building approvals jumped 3 per cent in August, led by the fastest growth in apartments and townhouses in seven months.
Building materials company Boral rose 1.6 per cent to $5.03, while CSR dipped 2.4 per cent to $3.27.
Australian miners have also suffered as a weaker growth outlook for China weighs on the price of iron ore. But overnight on Wednesday, the price of the steel-making ingredient lifted 1.1 per cent to $US78.89 per tonne.
On Thursday, BHP Billiton fell 1 per cent to $33.65, Rio Tinto dropped 0.5 per cent to $58.94. Iron ore miner Fortescue Metals bucked the trend, adding 2.6 per cent to $3.55.
Despite a torrid September for banking shares, CIMB analyst John Buonaccorsi thinks there is more to come, cutting his recommendation for the sector to 'underweight', from 'neutral'.
"Our estimate of their 'new world' intrinsic valuations are about 30 per cent below current share prices and the support from offshore yield investors will fade as the Australian dollar falls and US$ interest rates rise," Buonaccorsi said.
Among the big four banks on Thursday, Commonwealth Bank fell 0.5 per cent to $75.81, while ANZ dipped 0.7 per cent to $31.22. Westpac lost 0.5 per cent to $32.29 and National Australia Bank finished 0.5 per cent lower at $32.68.
Australia's financial sector was still awaiting the findings of the Murray Inquiry and there were concerns about what that would mean for banks' capital requirements, Patersons Securities strategist Tony Farnham.
In corporate news, Treasury Wine Estates said that the company would continue to benefit from an oversupply of grapes in the Australian market. However, TWE shares were 1.6 per cent lower at $4.21 at close on Thursday.
The Australian Competition and Consumer Commission gave the green light for global online travel powerhouse Expedia to take over Wotif.com, boosting its shares 6.5 per cent to $3.29.
Telstra shares fell 0.6 per cent to $5.35, with just one day to go before investors must decide whether to participate in the telecommunications company's $1 billion share buyback. The cut off time is 7pm on Friday.
Market volatility is increasing and there are a number of macro events investors will need to keep an eye on.
"[Thursday night] We've got the ECB policy meeting, everyone is waiting to see to what extent they follow through with their asset backed securities and covered bonds QE program," Mr Farnham said.
Friday's non-farm payrolls numbers in the United States was also likely to spark speculation about when the US Federal Reserve would raise interest rates, Mr Farnham said.
"Yellen has been talking about the need to think about employment and that it's not quite as strong as they'd like it to be."
