LONDON: A renewed drop in the Australian dollar was the main move on major currency markets on Tuesday, with the dollar, euro and yen steady before potentially more dramatic events later in the week.
The Swedish crown, driven to a two-year low after weekend elections pointed to a left-leaning government, recovered around a third of a percent while sterling fell back ahead of Thursday's referendum on Scottish independence.
The Aussie, generally more resistant since hitting an almost four-year low in January, has taken a hammering since the start of September, harried by a stronger U.S. dollar, poor Chinese data and a slump in prices of Australia's iron ore exports.
That all adds to broad concerns about the country's ability to grow after the end of a mining investment boom and, while the currency recovered briefly overnight, it was quickly back under pressure just above Monday's six-month low of $0.8984.
"It looks like there was some sort of order to sell (U.S.) dollars that went through at around 3 a.m. our time. Since then the Aussie has renewed its course," said Graham Davidson, a spot currency dealer with National Australia Bank in London.
"In general, it seems to be the dollar strength that has precipitated this move but there are several factors working against the Aussie."
The Aussie steadied somewhat in mid-morning trade in Europe but was still down 0.2 percent on the day at $0.9011.
The Australian central bank, in minutes from its latest policy meeting, again favoured a weakening of the Aussie, although the meeting took place when the exchange rate was around $0.93.
U.S. heavyweight Citi said its flow analysis showed the Aussie should come under more pressure.
"AUD selling stands apart in our data as the strongest 1-week of selling ever captured," its analysts said in a note. "Rarely are such flows in isolation. Typically risk reduction continues to tail for the next 1-2 weeks after extreme signals."
ROCK STEADY
Investors were reluctant to do much on the yen and euro against the dollar as they awaited fresh guidance on interest rates from the U.S. Federal Reserve on Wednesday.
The dollar index, which hit a 14-month peak on Sept. 9 and is on its longest winning streak since 1997, was roughly unchanged at 84.251.
The euro held steady at $1.2944, hemmed in a $1.2859-$1.2980 range since a selloff sparked by the a European Central Bank interest rate cut early this month faded.
Keeping pressure on the ECB, the OECD on Monday urged much more aggressive stimulus to ward off the risk of deflation in a subdued euro zone.
In contrast, markets have been positioning for the Fed, after its Sept. 16-17 meeting, to signal an earlier hike in rates than investors had previously expected.
That saw the 10-year U.S. Treasury yield post its biggest rally in over a year last week, bolstering the appeal of the dollar, particularly against the low-yielding yen.
"We expect the Fed to signal that it is on course to finish bond-buying next month and to raise rates in Q2 2015," said Kit Juckes, a strategist with Societe Generale in London.
"But we're painfully aware that's a consensus view and also, that with tomorrow's core CPI inflation expected to dip to 1.8 percent, there is no inflationary threat for the Fed to fight right now. No wonder dollar bulls are lacking conviction."
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