Debt fears dog euro; China PMI, Australia rates in focus

By Anirban Nag

SYDNEY (BestGrowthStock) – The euro slipped on Tuesday, showing its continued vulnerability to a broader sell-off on fears that the region’s sovereign debt problems could spread to the banking system.

The Australian dollar was marginally higher ahead of April retail sales data and the Reserve Bank of Australia’s (RBA) monetary policy board meeting, both due on Tuesday. (AU/INT: ).

The RBA is expected to keep rates on hold at 4.5 percent, but investors are waiting to hear its assessment of the balance of risks, given the euro-area debt crisis has become a far more destabilizing factor to global growth than earlier thought.

The European Central Bank on Monday warned that euro zone banks faced up to 195 billion euros in a “second wave” of potential loan losses over the next 18 months due to the financial crisis, and said it had increased purchases of euro-zone government bonds.

“Over the next 18 months calm water could turn turbulent in the blink of an eye,” RBC Capital senior currency analyst David Watt wrote in a note. “Accordingly, euro rallies seem likely to remain rather shallow and in that regard it is struggling to maintain the $1.23 handle.”

In Asian trade, the euro was down 0.15 percent at $1.2286, but was holding above a four-year low of $1.2143 struck on May 19. Near-term support is seen around $1.2140, the 50 percent Fibonacci retracement of the currency’s 2000-08 advance.

Traders said investors were looking at every bounce in the single currency to sell. Against the yen, the euro was down 0.2 percent at 112.04 yen.

Speculators and funds have gone short on the euro in droves in recent months with the latest data from the Commodity Futures Trading Commission suggesting they were still wary of cutting those positions.

The U.S. dollar was broadly steady on the yen at 91.17 yen. The dollar index (Read more about the global trade. ) (.DXY: ) was steady at 86.597, with the dollar expected to be bolstered by safe-haven inflows amid growing worries about the sustainability of a global recovery.

Underlining those economic risks, China warned on Monday that global growth remained vulnerable to sovereign debt risks and the possibility of a second downturn.

China releases PMI data later in the day and investors will watch those numbers for any signs of a slowdown in the Asian powerhouse. Soft figures could dent appetite for growth-linked currencies.

Investment Research

(Editing by Mark Bendeich)

Debt fears dog euro; China PMI, Australia rates in focus