Reuters: US Dollar Report: FOREX-Euro steadies, seen vulnerable to Spain uncertainty

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FOREX-Euro steadies, seen vulnerable to Spain uncertainty Oct 2nd 2012, 08:45 Tue Oct 2, 2012 4:45am EDT * Euro rangebound as investors await developments in Spain * Support from 200-day moving average around $1.2823 * Aussie dollar falls after RBA rate cut By Nia Williams LONDON, Oct 2 (Reuters) - The euro recovered slightly from a three-week low against the dollar on Tuesday but still looked vulnerable to selling as uncertainty over when Spain may seek a bailout unnerved European financial markets. The Australian dollar sank to a four-week minimum versus the U.S. currency and slid against the euro after the Reserve Bank of Australia cut interest rates by a quarter point to a three-year low of 3.25 percent. Analysts said the U.S. dollar was likely to hold firm against perceived riskier currencies until Madrid asks for aid. A bailout request, however, and expectations that would be followed by the ECB buying Spanish government debt, would bolster confidence in the single currency at least initially. European officials told Reuters on Monday that while Spain is ready to request a euro zone bailout for its public finances as early as next weekend, Germany has signalled that it should hold off. "People are sitting on their hands and it's noticeable the euro has been in a process of steady reversal since the ECB's decision on the bond-buying programme," said Neil Mellor, currency strategist at Bank of New York Mellon. "We're waiting for Spain to do something, judging by various headlines there's still a lot of backroom dealing going on." The euro was close to flat at $1.2888, pulling away from Monday's low near $1.2804 on trading platform EBS, its lowest level in three weeks. It has faded from a four-month peak of $1.31729 hit in mid-September after the ECB announced its bond-buying plan to lower peripheral debt yields and the U.S. Federal Reserve unleashed another round of monetary easing. Market players reported offers around $1.2925 and good support from the 200-day moving average at $1.2823. Another risk hanging over trade is ratings agency Moody's - still unfulfilled - promise to announce its review of Spain's rating around now, which could see Madrid's credit standing cut to junk status. Some dealers said crucial for the euro may be whether Spain acts fast enough to get ahead of market moves against it, or waits until its cost of borrowing is so high that it has to act. "If Spain requests (aid) proactively, I think the euro would have a lot more upside, perhaps to $1.33," said Sim Moh Siong, FX strategist for Bank of Singapore. "If they wait for the market to force them to do so, that means a sell-off in the bond market and the (10-year Spanish)yield back up to 7 percent," he said, adding that the euro could fall in that scenario. Against the yen, the euro edged up 0.1 percent to 100.66 yen . The dollar also rose 0.1 percent against the Japanese currency to 78.04 yen AUSSIE RATE CUT The Aussie dollar fell 0.6 percent to $1.0291, its lowest level since early September, weighed down by the RBA rate cut and concerns about slowing growth in China. The euro climbed around 0.8 percent to A$1.2540. While the rate cut was not a complete surprise, some analysts had thought Australia's central bank would wait until November to lower interest rates. Daniel Martin, Asia economist for Capital Economics in Singapore, said that while another cut could not be ruled out, the RBA would probably keep interest rates on hold from here until late 2013 or maybe longer. Other analysts saw it differently, however, and interest rate derivatives showed investors were looking for further cuts. Overnight index swaps, which show where the market thinks the cash rate will be over time, have 2.75 percent inked in on a 12-month horizon. Link this Share this Digg this Email Reprints

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