Dollar near multi-year peak as euro hangs in the balance

By Ian Chua

SYDNEY (Reuters) - The dollar was on the cusp of reaching its highest in nearly 13 years against a basket of currencies on Tuesday, with the euro pinned down by expectations of aggressive policy easing from the European Central Bank.

The dollar index stood at 100.200, having come within a whisker of the March peak of 100.390. A break there would take it to highs not seen since April 2003.

The index ended November with a gain of 3.4 percent, its second-biggest monthly rise this year.

Against the yen, the greenback popped above 123.00 for the first time in a week, but remained below November's three-month high of 123.77.

The ECB is expected to add further stimulus at Thursday's meeting. In contrast, the Federal Reserve has signalled a strong inclination to raise U.S. rates this month. Traders said only a disastrous payrolls report on Friday could set back such a move.

In any case, a diverging policy pathway has caused the euro to suffer a 4.0 percent drop in November - its worst in eight months. It was last at $1.0569 , near a 7-1/2 month trough of $1.0557 set overnight.

The common currency also lost ground against a host of other currencies overnight, particularly its higher-yielding peers.

It slid to five-month lows against the Australian and New Zealand dollars, reaching A$1.4553 and NZ$1.6012 respectively.

Both Antipodean currencies also outperformed the greenback, rising as far as $0.7250 and $0.6591 .

Traders are almost certain the Reserve Bank of Australia (RBA) will not cut interest rates at its policy meeting on Tuesday. The RBA will announce a decision at 0330 GMT.

Recent commentary from the central bank suggested it was in no hurry to move the cash rate, which has been sitting at a record low 2.0 percent since the last cut in May.

"A case for a further rate cut could still emerge at next February's Board meeting, particularly if the hoped for Fed rate rise doesn't deliver a lower AUD," analysts at CitiFX wrote in a note to clients.

China's manufacturing PMIs due later in the morning will be closely watched amid persistent worries about slowing growth in the world's second-biggest economy.

Outside of the G10 currencies, the Chinese yuan stood out as the International Monetary Fund admitted the Chinese currency to its benchmark Special Drawing Rights basket.

The yuan , also known as the renminbi, will have a 10.92 percent share after a review of the weightings formula for the SDR, which also cut the euro's share by more than 6 percentage points.

"The weightage assigned to the renminbi, while slightly higher than that of the yen and sterling, underwhelms somewhat market expectations and the IMF staff estimate of 14-16 percent," said Andy Ji, Asian currency strategist at Commonwealth Bank.

(Reporting by Ian Chua; Editing by Dan Grebler)