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FOREX -Euro inches lower; Aussie sags after RBA statement

Ian Chua and Masayuki Kitano
Tuesday, 5 Nov 2013 | 12:02 AM ET

* Euro eases but stays above seven-week low vs USD

* Upside seen limited ahead of ECB meeting on Thursday

* Aussie sags after RBA talks down the currency

SYDNEY/SINGAPORE, Nov 5 (Reuters) - The euro eased on Tuesday, stalling near a seven-week low as investors were cautious ahead of the European Central Bank's policy meeting this week, while the Aussie dollar slipped after the nation's central bank talked down the currency.

The euro eased 0.1 percent to about $1.3499, managing to stay just above a seven-week trough of $1.3442 set the previous day.

The single currency had bounced on Monday after a survey showed euro zone manufacturing activity accelerated in October as new orders increased for the fourth month in a row.

Still, a sharp slowdown in inflation last week has raised the risk the European Central Bank may be forced to cut interest rates as early as this Thursday's policy meeting, or at least lay the groundwork for a move.

"We expect the ECB to leave its interest rates and forward guidance unchanged at Thursday's meeting. However, the latest decline in inflation has raised the likelihood that the main refinancing rate could be cut again by 25 basis points in December," Barclays analysts wrote in a report.

The dollar index inched up 0.1 percent to 80.627, but still down from Monday's seven-week high of 80.930.

Against the yen, the dollar eased 0.2 percent to 98.45 yen .

Not helping to inspire dollar bulls, several U.S. central bankers said on Monday the Federal Reserve is in no hurry to scale back its bond-buying stimulus program and will only do so when the economy improves.

With the Fed seen likely to hold off from tapering its stimulus until next year and expected to keep interest rates low for an extended period, some analysts say downside risks for the euro might be limited despite the speculation about possible ECB monetary easing.

"If you ask whether there will be a shift to a trend of dollar strength and euro weakness, I don't think that will be the case," said Teppei Ino, an analyst for the Bank of Tokyo-Mitsubishi UFJ in Singapore.

The euro's recent drop should probably be regarded as a corrective move that came after some market players piled up long positions in the single currency, he said.

The Australian dollar slipped after the Reserve Bank of Australia (RBA) said the currency was uncomfortably high.

In its statement accompanying its widely-expected decision to hold rates steady at a record low 2.5 percent, the RBA said that a lower Australian dollar was likely to be needed to achieve balanced growth in the economy.

The Australian dollar fell 0.4 percent on the day to $0.9470 , giving back some of its roughly 0.8 percent gain made on Monday, when the Aussie rose on strong local retail sales data.