* Euro pulls away from previous day's 3-wk low vs dollar
* Focus on when Spain might make formal request for aid
* RBA rate cut drags Aussie lower, boosts euro/Aussie
By Masayuki Kitano
SINGAPORE, Oct 2 The euro edged higher and held
above a three-week low against the dollar on Tuesday, but its
outlook was clouded by concerns over Spain's fiscal woes and
uncertainty over the timing of a possible aid request by Madrid.
The single currency was helped by data the previous day
showing U.S. manufacturing grew slightly in September for the
first time since May, a reading that weighed on the safe haven
dollar and lent support to risky assets.
The euro rose 0.2 percent to $1.2914, pulling away
from Monday's low near $1.2804 on trading platform EBS, its
lowest level in about three weeks.
Spain remained a focal point, with traders waiting for
Madrid to seek a bailout and trigger the European Central Bank's
bond buying programme, a scheme aimed at lowering the borrowing
costs of indebted euro zone countries.
In addition, Moody's has yet to announce its review of
Spain's rating, which could see Madrid's credit standing cut to
The euro's near-term outlook could hinge on whether Spain
makes an early request for a bailout, or is forced by the market
into seeking such aid, said Sim Moh Siong, FX strategist for
Bank of Singapore.
"If Spain requests proactively, I think the euro would have
a lot more upside, perhaps to $1.33," he said.
"If they wait for the market to force them to do so, that
means a sell-off in the (Spanish) bond market and the yield back
up to 7 percent," he said, adding that the euro could face
downside risk under that scenario.
European officials said 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.
Gains in the euro could be limited ahead of a Eurogroup
meeting on Oct. 8, given the risk that the gathering may reveal
rifts among European officials regarding Spain, said Daisuke
Karakama, market economist for Mizuho Corporate Bank in Tokyo.
"If we see headlines that highlight the type of disagreement
that you often see, the euro could fall towards levels such as
$1.27 or $1.26," he said.
Against the yen, the euro edged up 0.3 percent to 100.83 yen
. The safe haven yen slipped broadly, with the dollar
edging up 0.1 percent to 78.08 yen.
AUSSIE RATE CUT
The Australian dollar fell to a one-month low versus the
dollar and slid against the euro after the Reserve Bank of
Australia (RBA) cut interest rates by a quarter point to a
three-year low of 3.25 percent.
The Aussie dollar fell 0.5 percent to $1.0307,
having touched a low of $1.0298 at one point, its lowest level
since early September.
The RBA rate cut helped lift the euro against the Australian
dollar. The euro climbed 0.7 percent to A$1.2523.
While the rate cut was not a complete surprise, many
analysts had thought that Australia's central bank would wait
until November to lower interest rates.
"I think everybody knew that this was going to be a close
decision ... This isn't going to be a shock to markets. I'm
looking at this statement as being not too alarmist," said
Daniel Martin, Asia economist for Capital Economics in
"The thing is growth has still been around trend in
Australia ... It's not at some kind of collapse stage," he said.
While another rate cut could not be ruled out, the RBA would
probably keep interest rates on hold from here until late 2013
or maybe longer, Martin added.
Interest rate derivatives, however, showed investors were
looking for further interest rate 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.