* 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 defensive
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, May 7 (Reuters) - 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 percent.
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.