SYDNEY: The euro struggled to make much headway in Asia on Tuesday, having suffered a setback overnight on renewed worries about Europe's economic health and ahead of a bond sale in the Netherlands.
The Netherlands, which Moody's says is facing a 'credit negative' event due to the collapse of the Dutch governing coalition, is scheduled to sell up to 2.5 billion euros of two- and 25-year bonds later in the day.
The euro last stood at $1.3155, having fallen as low as $1.3104 in New York and erasing all of Friday's 0.7 percent gain. But that still left it smack bang in the middle of a well-defined trading range of roughly $1.3000/$1.3300 seen for much of this month.
Technically, the inability of the currency to break either side of the range means more consolidative activity is possible, traders said.
Not helping the single currency, the euro zone's private sector slump deepened in April, dampening hopes the region will emerge from recession soon.
Investors took the news badly and promptly sold off commodity currencies and sought the safety of highly-rated government bonds. That saw German bund yields hit a record low, while those in the United States, Japan and Australia fell sharply.
The Australian dollar shed more than a full US cent at one stage to a near two-week low of $1.0272.
"Overall, currency markets are in risk-off mode," said Kit Juckes, strategist at Societe Generale.
The Aussie was already under pressure on Monday after producer inflation data surprised on the downside, raising the risk that consumer prices due at 0130 GMT will do the same.
Analysts expect underlying consumer inflation will be at the lower end of the Reserve Bank of Australia's 2-3 percent target band, giving the central bank the all-clear to cut rates at its May 1 policy meeting.
"The AUD will move on a figure low enough to persuade someone that a 50bp cut is possible, or on a figure which makes a cut less likely. We remain AUD bears," said Juckes.
In contrast, the safe-haven yen rose across the board. That saw the dollar retreat to around 81.00 yen from a peak of 81.78 set Friday. The euro was at 106.69, having pulled back from Friday's high of 108.00.
The US Federal Reserve will kick off its two-day policy meeting later on Tuesday. While the bar has been set pretty high for another round of stimulus, the market will nonetheless be keeping a close eye on this meeting given the still fragile economic recovery.