Reuters: US Dollar Report: REFILE-FOREX-Euro subdued ahead of Dutch auction; Aussie falls

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REFILE-FOREX-Euro subdued ahead of Dutch auction; Aussie falls Apr 24th 2012, 08:19 Tue Apr 24, 2012 4:19am EDT * Euro holds in range, outlook clouded by political risks * Dutch auction expected to see adequate demand * Aussie dollar weakens as RBA rate cuts eyed By Nia Williams LONDON, April 24 (Reuters) - The euro steadied against the dollar on Tuesday but further gains looked unlikely ahead of a debt sale in the Netherlands that will be watched for any sign of lacklustre demand after the country's governing coalition collapsed. Most analysts said the auction of up to 2.5 billion euros of two- and 25-year bonds should see adequate demand given its small size, but investors were increasingly nervous about signs of political upheaval in the euro zone's core. The Australian dollar hit a two-week low against the U.S. dollar after soft inflation data fuelled expectations of interest rate cuts by the Reserve Bank of Australia. The euro had its worst day in a week on Monday, falling half a percent as worries over the outcome of France's presidential election and bearish manufacturing data added to Dutch Prime Minister Mark Rutte's resignation. It edged 0.1 percent higher on Tuesday to $1.3164, paring losses from Monday when disappointing euro zone PMI data pushed it to a low of $1.3103. The currency, however, remains squarely in a range roughly between $1.30 and $1.33 that it has traded in since early April. Strategists said they expected that to hold, as long as the Dutch auction was in line with market expectations. "If we do not see a disaster in the bond auction the euro will be driven by this sideways movement in a range-trading environment. But the euro zone is running out of safe haven assets," said Ulrich Leuchtmann, head of FX research at Commerzbank. 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. Fellow agency Fitch warned last week it was on verge of taking negative action on the rating. Some investors were also concerned 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. Some analysts attributed the euro's recent resilience against the dollar to a fall in U.S. Treasuries 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 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 EURUSD 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. Traders cited talk of bids under $1.3110 and lower at $1.3070, while Middle Eastern investors were said to have offers at $1.3180. AUSSIE STUMBLES The Australian dollar was down 0.3 percent at US$1.0283. It earlier fell to a session low of US$1.0247 on data showing Australian consumer prices climbed less than expected last quarter while underlying inflation posted the smallest rise in a decade. The figures paved the way for a rate cut by the RBA next week and suggested further cuts later in the year would be possible. Australia's central bank earlier this month indicated it would consider cutting the 4.25 percent cash rate at its May 1 policy meeting, provided the inflation numbers were tame. Stephen Walters, chief economist at JPMorgan, said a rate cut next week was probably a "done deal". "Certainly the prospects of them going (cutting) more than once is going up, the way the European situation is developing," he said. The safe haven yen extended broad gains as investor appetite for perceived riskier currencies remained muted. That saw the dollar retreat 0.3 percent on the day to around 80.95 yen, pulling further away from a peak of 81.78 set on Friday. The euro fell 0.2 percent to 106.58 yen, having retreated from Friday's high of 108.00 yen. The U.S. Federal Reserve starts its two-day policy meeting on Tuesday. While the bar has been set high for another round of stimulus, the market will nonetheless be keeping a close eye on policymakers given the still-fragile U.S. economic recovery. Link this Share this Digg this Email Reprints

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