* Euro rangebound as investors await developments in Spain
* Bids from Asian central banks cited at $1.2880
* Aussie dollar falls after RBA rate cut
By Anirban Nag
LONDON, Oct 2 The euro edged higher on Tuesday,
pulling away from recent three-week lows against the dollar on
growing signs that Spain is ready to seek a bailout.
But uncertainty over the timing of the request kept
investors on edge with many selling the euro at higher levels.
Another risk factor is rating agency Moody's soon-to-be
accounced review of Spain's rating, which could see it cut to
The growth-linked Australian dollar fell to a four-week
trough against the U.S. currency and slid against the euro after
the country's central bank cut interest rates by a quarter point
and left the door open for more easing.
Analysts said safe-haven currencies like the U.S. dollar and
the yen would be in demand until Madrid asked for aid. But a
bailout request - and expectations that would be followed by the
European Central Bank buying Spanish government bonds to cut
borrowing costs - would push the euro and riskier assets higher.
European officials told Reuters on Monday that Spain was
ready to request a euro zone bailout for its public finances as
early as next weekend, but Germany had signalled that it should
"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 0.2 percent higher on the day at
$1.2920, pulling away from Monday's low near $1.2804 on trading
platform EBS, its lowest level in three weeks. Market players
reported bids from Asian central banks at around $1.2880 with
offers to sell at $1.2950, confining the currency to a range.
It has eased 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 teed
up another round of monetary easing.
While a request for a bailout by Spain could see a
short-term rally in the euro, some money managers are wary of
the single currency in the medium to long term, given gloomy
economic prospects, tough austerity measures and rising
unemployment in the euro zone.
"From a macro perspective, we would look to short the euro
against the dollar into any move higher as there is no growth in
the euro zone," said Howard Jones, adviser at RMG Wealth
"Value in the euro lies in the crosses, especially against
the yen given Japan's own problems and against the Australian
dollar because we are seeing commodity prices coming off."
Against the yen, the euro was 0.5 percent higher at 100.95
yen. The dollar rose 0.2 percent against the Japanese
currency to 78.10 yen, having hit a one-week high of
78.215 on EBS.
RATE CUT DENTS AUSSIE
The Aussie dollar fell 0.6 percent to $1.0291, its
lowest level since early September, weighed down by the Reserve
Bank of Australia rate cut and concerns about slowing growth in
China. The euro climbed around 0.8 percent to A$1.2540
While the cut, to 3.25 percent, 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 rates on hold from here until late
2013 or maybe longer.
Other analysts saw it differently, and interest rate
derivatives showed investors were looking for more 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.
BMO Capital Markets said in a note they were bearish on the
Australian dollar into the year-end and would express this view
through a long euro and short Aussie trade.
"Pull-backs towards A$1.2450 should be seen as good buying
opportunities, with medium-term targets at A$1.2686 (76.4
percent retracement of the sell-off from June) and A$1.3019 (May
high) respectively. Stop loss should be set close to A$1.2295."