SYDNEY The euro and commodity currencies held near multi-week highs on Tuesday, though a lack of fresh news out of the euro zone and a dearth of major economic data led to a draining of momentum from the market.
The single currency stood at $1.2386, having climbed as far as $1.2444 on Monday, a high not seen since early July. Against the yen, it bought 96.90, edging back slightly from a one-month peak of 97.80.
"There was no news to provide a catalyst for a strong sell-off or rally in FX," analysts at BNP Paribas wrote in a note.
"But in the meantime, the markets will remain hostage to any headlines out of the euro zone, especially with very little economic news due out this week from the euro zone or United States."
The ECB last week said may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs, but details of exactly how it will stabilize the bloc's bond markets have yet to be fleshed out.
Still, hopes the ECB will soon act sparked a global risk rally since Friday. While that helped lift the euro and high-beat currencies such as the Australian dollar, both the safe-haven U.S. dollar and yen were hit hard.
The dollar index .DXY was at 82.314, having plumbed a one-month trough of 82.087 on Monday. Against the yen, the greenback fetched 78.24, staying well within its prevailing 77.90 and 78.10 range.
Investors continued to favor commodity currencies, helping push the Australian dollar to a near five-month high of $1.0594 overnight. It was last at $1.0560.
The key focus for Aussie-dollar bulls is the Reserve Bank of Australia (RBA) policy meeting, with a statement due at 0030 EDT. All 20 economists polled by Reuters expect the RBA to keep the cash rate steady at 3.5 percent for a second month.
The RBA has indicated it is happy to sit back and see the impact of past rate cuts before deciding on its next step. It has lowered the cash rate by 125 basis points since November and a recent run of upbeat data, including retail sales, suggested those cuts were having a positive impact on the economy.
There has been speculation the RBA is uncomfortable with the Aussie at such high levels given falling prices for key commodity exports, and could hint at its unhappiness.
David Song, currency analyst at DailyFX, said the market is also keeping an eye out on the RBA's assessment on China, which is Australia's single largest export market.
"As China faces a greater threat for a 'hard-landing', the slowing recovery in the world's second-largest economy may prompt the RBA to strike a highly dovish tone for monetary policy," he said.
Traders said a dovish-sounding RBA could take some of the steam off the Aussie dollar and cement market expectations for more cuts this year.
(Editing by Wayne Cole)