Euro wallows on Ukraine sanctions worries, Aussie calm before RBA

By Kevin Buckland

TOKYO (Reuters) - The euro languished near a one-week low against the dollar on Tuesday amid talk of more sanctions against Moscow following international outrage over Ukraine civilian killings.

The Australian dollar was flat, hovering near a commodities price rally-fuelled nine-month high, ahead of the country's central bank's decision on interest rates later in the day.

The United States and European countries pledged on Monday to punish Moscow over civilian killings in northern Ukraine, where a mass grave and tied bodies of people shot at close range were found in a town seized back from Russian forces.

The deaths in Bucha, outside Kyiv, drew pledges of further sanctions against Moscow from the West, possibly including some restrictions on the billions of dollars in energy that Europe still imports from Russia. The Kremlin denied accusations related to the murder of civilians.

Europe's single currency was little changed at $1.0975 after dropping as low as $1.0960 in the previous session for the first time since March 28. It had reached a one-month high of $1.1185 just days earlier amid increased optimism for an end to the Ukraine conflict.

The euro's woes boosted the dollar index, which held near a one-week high of 99.083 reached overnight. It last stood at 98.949.

The dollar weakened 0.20% to 122.515 yen, broadly tracking moves in long-term U.S. Treasury yields, as it continued to consolidate around 122.5 after retreating from a multi-year high of 125.105 on March 28.

Bank of Japan Governor Haruhiko Kuroda put some additional pressure on the currency pair, saying the recent pace of appreciation was "somewhat rapid", and policymakers are watching moves "carefully".

Meanwhile, the Aussie was flat at $0.7541, staying close to Monday's high of $0.75565, a level not seen since July 6.

The Reserve Bank of Australia is widely expected to hold the key rate at a record low 0.1% on Tuesday, but investors will be watching for whether it discards a phrase that "the Board is prepared to be patient" about tightening from its post-meeting statement.

"Such a change in language will reinforce our call for the RBA to start raising the cash rate at its June meeting and support AUD," Commonwealth Bank of Australia strategist Carol Kong wrote in a client note.

The "very strong" increase in commodity prices over the past month has boosted the bank's estimate of Aussie fair value to a $0.82 to $0.95 range, centred on $0.89, she wrote.

 

(Reporting by Kevin Buckland; Editing by Muralikumar Anantharaman)