Reuters: US Dollar Report: FOREX-Euro garners support from Dutch debt auction

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FOREX-Euro garners support from Dutch debt auction Apr 24th 2012, 12:46 Tue Apr 24, 2012 8:46am EDT * Euro holds in range but outlook clouded by political risks * Dutch auction sees reasonable demand * Two-day FOMC meeting due to start later Tuesday NEW YORK, April 24 (Reuters) - The euro edged higher against the dollar Tuesday as a debt sale in the Netherlands produced solid results a day after the Dutch government's collapse in a crisis over budget cuts. Political uncertainty over the growing prospect of a change of leadership in France as well as the Dutch impasse, however, weighed on the single currency. Elsewhere in the euro zone, highly indebted Spain's borrowing costs also remained a source of concern. The Netherlands, one of the euro zone's few remaining AAA-rated economies, sold 1.995 billion euros of two- and 25-year government bonds, roughly in the middle of its target range, after Prime Minister Mark Rutte resigned the previous day following a dispute with the populist Freedom Party over spending cuts needed to meet European Union budget limits. "The most closely watched event was the Dutch auction following the recent political developments in the Netherlands," said Mark McCormick, G-10 currency strategist at Brown Brothers Harriman in New York. "The total of 2 billion euros sold falls short the maximum target of 2.5 billion euros but yields in the secondary market are down." The euro last 0.1 percent higher at $1.3164 slipped after climbing as high as $1.3183, according to Reuters data. The currency, however, remains in a range roughly between $1.30 and $1.33 it has kept since early April. Traders cited talk of bids under $1.3110 and lower at $1.3070, and offers from Middle Eastern investors at $1.3180. Toronto-based online currency trading firm Oanda Corp data showed almost 60 percent of positions on the euro/dollar are short or bet that the euro will fall against the dollar, an increase from about 57 percent on April 19. Ratings agency Moody's said the collapse of the Dutch government after failing to agree on austerity cuts was credit-negative, although it maintained the country's triple-A rating. Last week, Fitch warned it was on the verge of taking negative action on the rating. The failure of the Dutch government could also add another complicating factor for the euro zone as a whole. "Another implication of the collapse of the Dutch government is that it could create some difficulties in ratifying the euro zone Fiscal Compact," said Brown Brothers Harriman's McCormick. Many investors also showed concern about events in France where Socialist Francois Hollande - who has promised to renegotiate a European budget pact - won the first round of France's presidential poll on Sunday. The second round of the French presidential election will occur on May 6, the same day that Greece elects a new government, while Ireland faces a referendum on the European Union fiscal compact later in May. "As we move into May and June we could see further volatility and turmoil," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi in London. EURO RESILIENCE The U.S. Federal Reserve starts its two-day policy meeting o n Tuesday. While the bar has been set high for another round of stimulus, the market will nonetheless be keeping a close watch on policymakers given the still-fragile U.S. economic recovery. Some analysts attributed the euro's recent resilience against the dollar to a fall in Treasury yields on weaker economic data, which has compressed the spread between the 10-year U.S. government bonds and their German equivalent. The apparent inability of the common currency to break either side of the range meant more consolidation was possible, they said, although given the return of tension around debt problems few were optimistic about the euro in the longer term. "We expect euro/dollar to resume a weakening trend in coming weeks, with a break of $1.30 opening up a trading target of $1.25 within a 2-3 month horizon," said Jens Nordvig, global head of FX strategy at Nomura Securities in New York. The Australian dollar hit a two-week low against the U.S. dollar after soft inflation data fueled expectations of interest rate cuts by the Reserve Bank of Australia. The Aussie was down 0.2 percent at US$1.0293 on data showing Australian consumer prices climbed less than expected last quarter while underlying inflation posted the smallest rise in a decade. The safe-haven yen was broadly steady, trading close to flat against the U.S. dollar at 81.16 yen. Link this Share this Digg this Email Reprints

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