* Euro softens after dovish comments from ECB head
* Draghi says ready to cut rates further if needed
* Aussie dlr defensive ahead of rate decision
* Yen steps up after Japanese holidays but seen staying on
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, May 7 The euro struggled to gain
any momentum on Tuesday after the European Central Bank chief
reiterated his readiness to take more action while the
Australian dollar nursed losses as bears bet on the prospect of
a cut in interest rates later in the session.
The yen bounced back from a 10-day low versus the dollar on
Japanese exporters' buying after a long weekend in Japan, though
many traders expect the currency to stay under pressure after a
solid U.S. job report last week.
The common currency was at $1.3073, little changed on
the day after having pulled back from Monday's high of $1.3141.
It fell as far as $1.3053 after the head of the European Central
Bank (ECB) reiterated the central bank's readiness to cut
interest rates again if needed.
In a speech in Rome, ECB President Mario Draghi said the
bank would monitor incoming data closely and be ready to cut
rates further, including the deposit rate currently at zero.
"For southern European countries, a euro above $1.30 would
be too high for their economy. Among major central banks, the
ECB has been the only bank that is not expanding its balance
sheet. But It will likely consider such a step," said Minori
Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
Initial support for the euro is seen around $1.3024, the
76.4 percent retracement of its April 24-May 1 rally and the
55-day moving average at $1.3021.
Vassili Serebriakov, strategist at BNP Paribas, said further
downside risks for the euro are likely to be limited thanks to
ongoing significant support from European market sentiment.
"Both European financial equities and the core-periphery
spreads have been moving in a favourable direction and indicate
that EUR/USD can potentially strengthen to the 1.34-1.35 area."
The common currency also ceded a bit of ground against the
yen, slipping to 129.38 from Monday's session high of
130.40 and off a 3-year high of 131.10 set last month.
The pullback in the euro saw the dollar index drift up to
82.264 from Monday's low of 81.982, helping keep it well
away from last week's 2-month trough of 81.331.
The greenback gave up some of its recent gains against the
yen as Japanese traders returned to the market after the
four-day long weekend.
The dollar slipped 0.4 percent to 98.94 yen, after
having risen as high as 99.455 on Monday on the back of the
upbeat U.S. jobs data last Friday.
Still, many market players think the currency is gearing up
for another go at tough resistance at the 100 level.
The big mover overnight was the Australian dollar, which
fell 0.15 percent to $1.0236, extending Monday's fall
as markets positioned for a possible interest rate cut by the
Reserve Bank of Australia (RBA).
While the majority of analysts polled by Reuters suspect the
RBA will not cut, markets have priced in a 50-50 chance of a
quarter point easing in the cash rate to a record low 2.75
Those arguing for a cut point to still tame inflation at home
and recent signs of slower growth in China, the country's
biggest export market.
Others, however, say the bank will wait for employment data
later this week and a report on company investment plans later
in the month before making a decision.
Should the RBA hold steady at 0430 GMT, the Aussie should
squeeze higher to test resistance in $1.0300/23 zone. Strong
support is seen at the overnight low near $1.0220, a level which
has propped the currency up in the past few weeks.