U.S. dollar in favour as market eyes election

SYDNEY (Reuters) - The U.S. dollar hovered around two-month highs against a basket of major currencies in Asia on Monday as investors sought the safe-haven currency given uncertainty surrounding the U.S. presidential election.

Polls show the race for the White House remained close before Tuesday's election.

A combination of upbeat U.S. jobs figures and data showing euro zone manufacturing shrank for the 15th month running in October, also saw investors favour the U.S. currency over the euro.

The single currency slid to $1.2809 first thing Monday morning, reaching lows not seen since early October. It last traded at $1.2823, with immediate support at the October 1 trough around $1.2804. That support also represents the bottom of its $1.2800/1.3200 range seen since September.

Also under pressure, the Australian dollar was last at $1.0338, having recoiled from a five-week high of $1.0418 set Friday.

All that helped underpin the dollar index .DXY, which remained near a two-month peak above 80.610.

"Investors hate uncertainty, so there will be a sigh of relief when the election is over. Provided there is a clear election result and no change in the divided Congress, then traders and investors will see it as 'business as usual'," said Craig James, chief economist at CommSec.

"If either candidate was to win power and his party gained control over Congress, then investors would be expected to react positively," James said, adding the next focus is the U.S. fiscal cliff issue.

Other key events this week include the Chinese congress that will usher in a generational leadership change and a European Central Bank policy meeting.

For the Australian-dollar trader, retail sales data due at 0030 GMT will be closely watched, a day ahead of the Reserve Bank of Australia's (RBA) interest rate decision.

Most analysts polled by Reuters on Friday expected the RBA to deliver a follow-up interest rate cut, taking the cash rate to 3.0 percent, a trough set during the global financial crisis.

"However, higher-than-expected September quarter inflation means it's a close call as to whether the RBA will cut on Tuesday or wait till December," said Shane Oliver, head of investment strategy at AMP Capital.

(Editing by Wayne Cole)