The dollar hovered near a three-month low against a basket of currencies on Tuesday on the perception that the US growth outlook is deteriorating, forcing the Federal Reserve to keep interest rates low. The Australian dollar dropped after retail sales and building approvals data in Australia disappointed bulls.
Aussie trims losses But the Aussie trimmed losses after the Reserve Bank of Australia's post-meeting statement contained no negative surprises, prompting players to cover short positions in the currency. The RBA kept its benchmark interest rate steady at 4.5 percent, as widely expected, and said policy was appropriate given past rate raises, moderating inflation and some uncertainty about the global outlook.
The Australian dollar was down 0.1 percent at $0.9115, off the day's low of $0.9090 hit after the data. It struck a three-month peak of $0.9146 on Monday. Against the yen, it slipped 0.3 percent to 78.77 yen. The euro stayed near a three-month high after having broken above a key Fibonacci retracement level, helped by improved risk appetite after decent manufacturing data from Europe.
The euro slipped 0.1 percent to $1.3165, but was near the three-month high of $1.3196 hit on Monday, when stop-loss orders were triggered after it broke above $1.3125, a 38.2 percent Fibonacci retracement of its decline from November to June. The currency's advance could be slowed by option barriers at $1.32 and $1.3250, although a break through those levels could open the way for it to reclaim $1.3510, a 50 percent retracement of its six-month fall to early June. Against the yen, the euro slipped 0.2 percent to 113.82 yen.
Investors' rising risk appetite could push up the pair beyond the 10-week peak of 114.74 yen hit last week, although there will be a resistance at 115 yen, where Japanese exporters are likely to place fresh sell orders, said a trader at a Japanese brokerage house. The dollar index stood at 80.96, flat from late Monday but just above Monday's three-month low of 80.792. A break below 80.723 would put it below its 200-day moving average for the first time since January and on course to test an April 14 low of 80.03.
The greenback has slid over the past month after a run of disappointing US data fuelled expectations that US growth could lose momentum as official stimulus is withdrawn. The dollar slipped 0.1 percent against the Japanese yen to 86.46 yen, not far from an eight-month low of 85.95 yen hit late last week.
"With interest rate differentials between the yen and dollar disappearing, dollar/yen is tending to be driven by Japanese exporters' flows, as we've seen in the past few sessions," said Daisuke Karakama, a market economist at Mizuho Corporate Bank. Japanese exporters have been selling the dollar as their summer holiday season approaches in mid-August.
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