FOREX-Euro gets a brief reprieve, Aussie perky ahead of rate meeting
* Euro bounces off seven-week low vs USD
* Upside seen limited ahead of ECB meeting on Thursday
* Aussie climbs above 95 US cents ahead of RBA rate decision
By Ian Chua
SYDNEY, Nov 5 (Reuters) - The euro clung to modest gains early in Asia on Tuesday, having bounced off a seven-week low on the back of improving euro zone data, but talk of a rate cut this week should curb demand for the common currency.
The euro last traded at $1.3510 after pulling up from a trough of $1.3442, a low not seen since September and where strong chart support lies. It was still more than 2 percent below a near two-year peak of $1.3833 set last month.
Against the yen, the common currency stood at 133.26 , holding off a three-week low of 132.60 plumbed on Friday.
The rebound in the euro came as a survey showed euro zone manufacturing activity accelerated in October as new orders increased for the fourth month in a row.
Still, a sharp slowdown in inflation last week has raised the risk the European Central Bank may be forced to cut interest rates as early as this Thursday's policy meeting, or at least lay the groundwork for a move.
"We expect the ECB to leave its interest rates and forward guidance unchanged at Thursday's meeting. However, the latest decline in inflation has raised the likelihood that the main refinancing rate could be cut again by 25 basis points in December," Barclays analysts wrote in a report.
The firmer euro knocked the dollar index from a seven-week peak of 80.930 to 80.591. The greenback also lost a bit of ground against the Japanese currency, dipping to 98.64 from Monday's high of 98.84.
Not helping to inspire dollar bulls, several U.S. central bankers said the Federal Reserve is in no hurry to scale back its bond-buying stimulus program and will only do so when the economy improves.
A standout currency was the Australian dollar, which popped back above 95 U.S. cents following strong local retail sales data. It was last at $0.9505, having gained 0.7 percent on Monday.
Key to the Aussie's near-term direction is the outcome of the Reserve Bank of Australia (RBA) policy meeting at 0330 GMT.
While the RBA is considered almost certain to keep the cash rate unchanged at a record low 2.5 percent, market players are keen to see if it'll again talk down the currency.
The RBA has repeatedly said low interest rates are already supporting spending and asset values and would like to see a weaker currency help bolster activity in the trade-exposed sector for a broader-based economic expansion.
"Going into today's RBA rate announcement, market expectations are very benign with little to no chance of a rate cut priced in for the meeting and a tightening of 10 basis points priced in over the next 12 months," analysts at BNP Paribas wrote in a note to clients.
"The risk is that RBA surprises markets with dovish talk and some jawboning on the currency. However, absent an actual rate cut, we are not convinced the impact of these comments will extend beyond an immediate knee-jerk reaction that will ultimately offer a buying opportunity on the AUD."
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