* Euro off lows, steadier after early-week selloff
* Healthy demand at Italy bond sale offset political
uncertainty
* BOJ nominees eyed, AUD looks to investment spending data
By Ian Chua
SYDNEY, Feb 28 (Reuters) – The euro held its ground against
the dollar and yen on Thursday, with euro bulls taking heart
after a relatively smooth auction of Italian government bonds
helped ease worries about the country’s inconclusive election.
The common currency traded at $1.3134, having bounced
from an eight-week trough of $1.3018 plumbed earlier in the
week. Against the yen, the euro fetched 121.14, up
from a five-week low of 120.20.
Euro longs were shaken on Monday after the Feb. 24-25
election gave none of Italy’s political parties a parliamentary
majority. The outcome raised the risk of prolonged uncertainty
in the euro zone’s third largest-economy and a renewal of the
region’s financial crisis.
Despite those fears, a sale of Italian government bonds on
Wednesday drew solid demand, helping soothe jitters that the
political deadlock could destabilise Europe’s second-biggest
sovereign debt market.
Still, analysts said the euro is unlikely to climb too far
as long as uncertainty in Italy persists. Highlighting the
challenges ahead, two of the country’s influential party leaders
ruled out the most likely option to form government and avoid a
new election.
“I believe there’s a growing consensus that new elections
will have to take place at some point in the next few months,”
said Christopher Vecchio, currency analyst at DailyFX.
The steadier euro, for now, saw the dollar index
retreat from a six-month high of 81.948 reached earlier in the
week. It was last at 81.559.
On the yen, the dollar was a tad firmer at 92.21,
having found its footing after Monday’s slide to 90.85. The
selloff in the euro on Monday had sparked a vicious wave of
short-covering in yen crosses.
Japan’s prime minister is expected to nominate Asian
Development Bank President Haruhiko Kuroda as BOJ governor and
Kikuo Iwata, an academic, as one of the two deputy governors as
early as Thursday.
News that two doves will likely lead the BOJ had prompted
investors to sell the yen as they positioned for the central
bank to deliver bold policies to jumpstart the world’s third
biggest economy.
The dollar outperformed its Japanese counterpart even after
Federal Reserve Chairman Ben Bernanke again defended the central
bank’s forceful easing of monetary policy.
Bernanke, facing a congressional panel for a second day,
also downplayed signs of internal divisions, saying the policy
of quantitative easing has the support of a “significant
majority” of top central bank officials.
Commodity currencies, hit this week by renewed euro zone
worries, also appeared to be on the mend. The Australian dollar
was at $1.0225, recovering from a slide to a
four-month low at $1.0183.
The Aussie’s immediate focus is investment spending data due
at 0030 GMT. Any disappointment in the figures, particularly a
downgrade of future spending plans, could bolster expectations
for an interest rate cut and undermine the Aussie.
Markets are currently giving only a one-in-three chance of a
cut at the March 5 policy meeting.
“This number will be key in setting market expectations for
RBA policy, with the potential for a March or April cut becoming
live,” Martin Whetton, analyst at Nomura said.
