Euro sees little reprieve in holiday trade, Aussie eyes rate call
SYDNEY (Reuters) - The euro languished at one-year lows early on Tuesday, following an aimless session overnight with market activity severely hampered by a holiday in the United States.
The common currency last traded at $1.3129, having drifted in a slim $1.3119/1.3146 range for all of Monday. That helped keep the dollar index near a 13-1/2 month peak of 82.804 .DXY.
Against the yen, the greenback held just below a one-week high of 104.36. The euro dithered at 136.94, not far from a two-week low of 136.42 set last Thursday.
The deepening crisis in Ukraine and the risk of an imminent policy easing by the European Central Bank (ECB) have combined to pin the euro down.
Data on Monday showed euro zone factories barely increased prices last month, and manufacturing activity in France fell at the fastest pace in 15 months. A separate report confirmed the German economy contracted for the first time in over a year in the second quarter.
That should keep alive the possibility of fresh stimulus from the ECB as early as Thursday. French President Francois Hollande and ECB President Mario Draghi agreed on Monday that deflation and weak growth were threatening the European Union's economy, an official in the president's office said.
Indeed, persistent speculation the ECB will have to embark on a bond-buying program in the footsteps of the Fed and Bank of Japan have seen euro zone bond yields fall sharply. Both German and French 2-year yields are now below zero percent.
In the local trading session, a policy review by the Reserve Bank of Australia will take center stage, although no one expects the central bank to adjust the current interest rate setting.
"A mention of the improved investment outlook could be warranted, and may provide some support for the AUD," said Emma Lawson, senior currency strategist at National Australia Bank.
"The RBA Governor was relatively comfortable about the on-hold outlook at the Government Economics Committee hearing last month, and it would be a surprise for there to be much new information at today's meeting and statement."
The Aussie last traded at $0.9333, just off last week's three-week peak of $0.9374. It has been surprisingly resilient in light of disappointing surveys that showed growth in its largest trading partner, China, may be faltering again.
The ISM report on the U.S. manufacturing sector due later in the day is shaping up to be the next major focus. There is a good chance that it would further highlight the diverging monetary policy pathway between the United States and euro zone.
(Editing by Richard Pullin)