SYDNEY/TOKYO: The euro steadied on Wednesday as traders tried to gauge how close Spain is to asking for European financial aid, while the Australian dollar slid to four-week low after Australia posted its biggest trade deficit in 3 1/2 years.
The Aussie was also weighed down by expectations that Australian interest rates will be cut further, after Tuesday's reduction in rates.
The euro was at $1.2905, little changed from late US levels, having retreated from Tuesday's one-week high of $1.2968 after Spanish Prime Minister Mariano Rajoy said an aid request was not imminent.
Still, the common currency remained well above a three-week trough of $1.28035 plumbed on Monday as many market players expect Spain to eventually ask for help sooner or later.
"Rajoy has taken reform steps so he can apply for aid anytime he needs. That should discourage speculators from selling the euro too aggressively," said Seiya Nakajima, chief economist at Itochu Corp.
Rajoy, who announced belt-tightening measures for its 2013 budget on Thursday, also said on Tuesday he reached an agreement on fiscal consolidation with the regions, though he gave no details.
For now, the euro appeared to be carving out a trading range while markets wait for a move from Spain that would likely trigger the European Central Bank's recently announced bond-buying programme.
The common currency was also helped after Moody's said it would announce the results of its review o Spain's sovereign debt rating some time this month, wrongfooting euro bears who had expected an imminent downgrade.
Spain stands to lose its investment grade rating if Moody's decides to downgrade the country.
Traders said the resilience in the euro could partly be attributed to buying against the Australian dollar, which weakened all round after August trade data showed the biggest deficit in three and a half years.
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