FOREX -Euro inches lower; Aussie sags after RBA statement

Reuters

* Euro eases but stays above seven-week low vs USD

* Upside seen limited ahead of ECB meeting on Thursday

* Aussie sags after RBA talks down the currency

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, Nov 5 (Reuters) - The euro eased onTuesday, stalling near a seven-week low as investors werecautious ahead of the European Central Bank's policy meetingthis week, while the Aussie dollar slipped after the nation'scentral bank talked down the currency.

The euro eased 0.1 percent to about $1.3499, managingto stay just above a seven-week trough of $1.3442 set theprevious day.

The single currency had bounced on Monday after a surveyshowed euro zone manufacturing activity accelerated in Octoberas new orders increased for the fourth month in a row.

Still, a sharp slowdown in inflation last week has raisedthe risk the European Central Bank may be forced to cut interestrates as early as this Thursday's policy meeting, or at leastlay the groundwork for a move.

"We expect the ECB to leave its interest rates and forwardguidance unchanged at Thursday's meeting. However, the latestdecline in inflation has raised the likelihood that the mainrefinancing rate could be cut again by 25 basis points inDecember," Barclays analysts wrote in a report.

The dollar index inched up 0.1 percent to 80.627, butstill down from Monday's seven-week high of 80.930.

Against the yen, the dollar eased 0.2 percent to 98.45 yen.

Not helping to inspire dollar bulls, several U.S. centralbankers said on Monday the Federal Reserve is in no hurry toscale back its bond-buying stimulus program and will only do sowhen the economy improves.

With the Fed seen likely to hold off from tapering itsstimulus until next year and expected to keep interest rates lowfor an extended period, some analysts say downside risks for theeuro might be limited despite the speculation about possible ECBmonetary easing.

"If you ask whether there will be a shift to a trend ofdollar strength and euro weakness, I don't think that will bethe case," said Teppei Ino, an analyst for the Bank ofTokyo-Mitsubishi UFJ in Singapore.

The euro's recent drop should probably be regarded as acorrective move that came after some market players piled uplong positions in the single currency, he said.

The Australian dollar slipped after the Reserve Bank ofAustralia (RBA) said the currency was uncomfortably high.

In its statement accompanying its widely-expected decisionto hold rates steady at a record low 2.5 percent, the RBA saidthat a lower Australian dollar was likely to be needed toachieve balanced growth in the economy.

The Australian dollar fell 0.4 percent on the day to $0.9470, giving back some of its roughly 0.8 percent gain madeon Monday, when the Aussie rose on strong local retail salesdata.

Rates

View Comments (0)