The dollar steadied against the euro on Tuesday after dipping against the common currency on an inconclusive Spanish election result, while traders looked ahead to US data for direction.
The euro was steady at $1.0914, having risen about 0.4 per cent overnight on short-covering after Sunday’s national election in Spain. The gains were limited as no party won a clear mandate to govern, raising concerns about economic reforms in the euro zone’s fourth-largest economy.
“It was relatively easy for the euro to rise since there are not many participants in the market,’’ said Daisuke Karakama, a market economist at Mizuho Bank in Tokyo.
“Furthermore, Spain has a current account surplus and its government debt-to-GDP ratio is expected to decline, so it will not become a Greece overnight even if anti-austerity parties take power,’’ he said.
The dollar inched up 0.1 per cent to 121.275 yen, having spent the previous day in a narrow range of 121.16-121.50.
Holiday season
The approaching holiday season that will shut much of the world’s key financial markets limited activity and kept currencies bound in tight ranges.
With the US Federal Reserve’s much-anticipated interest rate hike out of the way, there was very little in the way of market-moving events in a holiday-heavy week.
Markets will look for short-term catalysts from US data, including revised third quarter GDP and housing price indicators, due later in the session.
In the longer term, the dollar, which was on track to post an 11 per cent gain against a basket of key currencies this year, was expected to stay on a bullish footing next year. The dollar index was also headed for its fourth successive year of gains.
“With the Fed’s rate hike at the end of 2015, a new phase of divergence is at hand...we expect the Obama dollar rally to continue in 2016,’’ wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
“The premium one earns in US dollars will continue to attract capital flows into the United States. Because of the wide and widening interest rate differentials, one is paid to be long dollars.’’
With crude oil prices dropping to 11-year lows, the Canadian dollar remained under pressure. The loonie traded at C$1.3945 per dollar, within reach of an 11-year trough of C$1.4003 struck on Friday. The dollar has risen about 19 per cent against the loonie so far this year.
The Australian dollar, another commodity currency, fared slightly better. The Aussie was up 0.2 per cent at $0.7202, putting further distance between a one-month low of $0.7097 hit last week after the Fed’s rate hike shored up the US currency.
Hurt by factors including an economic slowdown in China, Australia’s chief trading partner, and a decline in the prices of commodities such as iron ore, the Aussie was on track to lose 12 per cent against the dollar in 2015.