The Australian dollar received two separate waves of support on Thursday, with a sharp fall in the New Zealand dollar and an expansion in China’s factory sector both lifting the local unit.

The Reserve Bank of New Zealand increased its official cash rate by a quarter of a percentage point and described the Kiwi dollar’s strength as unjustified.

The New Zealand dollar was sold off sharply and provided collateral support for the Aussie in the morning.

But the big move for the day was after the release of the HSBC flash China manufacturing Purchasing Managers’ Index (PMI) which edged up to 52 in July, above the 50-point mark that separates expansion from contraction.

The Aussie lifted more than a quarter of a cent to a high of US94.71¢ from around US94.40¢ just before the survey was released.

China’s economy grew faster than expected in the second quarter as a raft of government stimulus measures paid dividends.

There has been some concern surrounding Chinese growth, with some analysts suggesting a slowdown in the world’s second largest economy was imminent, but activity in China’s factory sector expanded at its fastest pace in 18 months.

The dollar initially rose steeply, but as the afternoon wore on it fell away and was trading at US94.50¢ late in the session.

“The air above the US94.50¢ is proving to be very thin,” said Ray Attrill global co-head of FX strategy at National Australia Bank .

“We had good news for the dollar from the Chinese PMI figures but it hasn’t really changed position from where it’s been for the last week.

“That indicates there is a reluctance to be chasing the Aussie dollar higher among speculative, fast money traders. They’re still a bit nervous about holding the Aussie dollar up near US95¢.”

Low market volatility is still keeping the Aussie within a tight trading range, and even geopolitical events haven’t really resonated with foreign exchange markets.

However, the downing of two Ukraine fighter jets and suggestions the missiles came from Russia has increased speculation that event might be the catalyst for the European Union deciding to move towards a more aggressive phase of sanctions against Russia.

“That kind of geopolitical event could further impact negatively on trade flows in Europe,” Mr Attrill said.

“The type of international response towards Russia is still a potential flashpoint for market volatility and maybe under that guise the Australian dollar may be revealed as not a particularly safe haven currency.”