The preliminary China Caixin purchasing managers index (PMI) surprised markets by dropping to a 15-month low in July, with analysts pinning the hit on the recent stock market crash and weak export demand.
The index, released Friday, fell to 48.2, coming in well below the 49.7 forecast from a Reuters poll and the 50-mark separating growth from contraction.
"The PMI came as a big surprise for the market, which was expecting an increase," Dariusz Kowalczyk, senior economist at Credit Agricole private bank, said. "I believe the reading reflects the negative impact of the stock market crash, the weaker outlook for consumption and the worsening of availability of funding for investment," he said, noting that initial public offerings (IPOs) were suspended in the wake of stock market turmoil.
After the data, the Australian dollar dropped as low as $0.7292 - its lowest against the greenback since May 2009, during the Global Financial Crisis - from $0.7345 before the release. China is among Australia's largest trading partners, offering a market for resources exports.
The Shanghai Composite reversed gains to end down 1.3 percent, breaking a six-session winning streak.