The dollar held some of the gains it made on Monday as it spiked higher on safe-haven bids following news of the death of North Korean leader Kim Jong-il. North Korean state television reported the demise of the leader of the reclusive nation, with aspirations to be a nuclear-armed power, which had begun the process of transferring power to his son Kim Jong-un. The older Kim was said to have suffered a heart attack on a train on Saturday.
Against its Japanese counterpart, the dollar bought 77.94 yen, after spiking to a session high of 78.18 yen from around 77.86 yen shortly before the news of Kim's death. The dollar index was at 80.430, after rising as high as 80.493 from 80.303 before the news.
"Risk proxies are selling off, and forex is taking the lead from equities markets," said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong. The Australian dollar bought $0.9930, after easing to $0.9902 from $0.9922 shortly before the news. It dropped from $0.9987 in late New York trade on Friday.
The Aussie lost 2 percent last week but did manage to bounce from lows around $0.9862, with support seen around that level with resistance at $1.0052. The euro, hurt by fears of European sovereign ratings downgrades, remained under pressure after its worst weekly performance in three months.
The single currency stood at $1.3013, down from a high of $1.3049 hit early in the Asian session and approaching an 11-month low of $1.2944 marked last week. In addition to following any updates on the North Korean leadership, investors will also focus on a eurozone finance ministers teleconference call from 1430 GMT about the draft text of a new fiscal compact agreed earlier this month. Talks will also include the size of individual bilateral loans to the International Monetary Fund.
Short-covering could also underpin the currency. IMM data released on Friday showed net short positions in the euro against the dollar totalled 116,457 as of December 13, following a disappointing EU Summit. "With such large short positions, it's very possible that the euro could get a brief lift on short-covering in thin conditions ahead of the end of the year, even though pressure remains from the downgrade concerns," said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo.
Resistance lies at $1.3090, which would be a 50 percent retracement of its recent move from $1.3236 to $1.2944. Another key barrier lies at $1.3125-45. Any sign of improving credit conditions in the eurozone would also provide support for the single currency.