Euro wobbles on Portuguese risk, Aussie takes China data in stride

The euro wobbled on Wednesday as political uncertainty in Portugal weighed on the currency already bracing for further monetary policy easing from the European Central Bank.

The Australian dollar, often used as a proxy of China-related trades, took in stride data that showed industrial production growth in the world’s second largest economy was roughly in line with expectations. ECONCN

The euro last stood at $1.0757 EUR=, recovering after having slid below $1.0700 for the first time in over six months overnight. On Tuesday, it fell as far as $1.0674 after breaking below Friday’s trough of $1.0704.

Investors took aim at the euro after Portugal’s minority government collapsed as left-wing parties ousted the ruling centre-right. It was the first such move against an elected government since the end of dictatorship in 1974.

“While political uncertainty in Portugal does not bode well for the euro, a Greece-like scenario is not in the cards. Portugal’s fiscal backdrop is much more manageable than Greece’s,” said Elias Haddad, senor currency strategist at Commonwealth Bank.

“Rather, expectations of more ECB easing will continue to keep the euro under downside pressure.”

In contrast, expectations that the Federal Reserve will hike U.S. interest rates in December for the first time in nearly a decade were keeping the greenback underpinned.

With the euro under pressure, the dollar index .DXY broke back above its post-payrolls high of 99.345 to scale a fresh seven-month peak of 99.504.

In Asia, the greenback stepped back a bit with the dollar index at 98.885, but traders said there was still underlying support for the U.S. currency.

“Markets have already concluded that the Fed will raise rates in December and I don’t think the big picture has changed. I expect the dollar to strengthen further a bit towards the Fed’s policy meeting (on Dec. 15-16),” said a trader at a Japanese bank.

Against the yen, the greenback fetched 122.87 JPY=, easing from a 2-1/2 month peak of 123.60 set on Monday.

The Aussie was up 0.5 percent at $0.7066 AUD=D4, little affected by figures showing Chinese industrial output growth at 5.6 percent in October, a touch below forecasts of a 5.8 percent rise. The Aussie was still within reach of a one-month low of $0.7016.

Source: Reuters