By Joseph Adinolfi and Sara Sjolin, MarketWatch , Hiroyuki Kachi

Strong China data, hawkish RBA statement lift Aussie

The dollar weakened against the euro and yen on Tuesday as polls showed the presidential race between Republican nominee Donald Trump and Democratic rival Hillary Clinton continues to tighten.

The ICE U.S. Dollar index , a gauge of the dollar's strength against a basket of six rivals, fell 0.5% to 97.9240.

In a Washington Post-ABC News Tracking Poll released Tuesday showed Trump had a one-point lead (http://www.marketwatch.com/story/trump-takes-one-point-lead-over-clinton-in-fresh-poll-more-on-trump-tax-avoidance-strategies-2016-11-01) over Clinton as enthusiasm for the Democratic candidate weakened. The Real Clear Politics poll average (http://www.realclearpolitics.com/epolls/2016/president/us/general_election_trump_vs_clinton-5491.html) showed Clinton's lead had narrowed to 2.2 percentage points from more than 7 points two weeks ago.

The narrowing lead follows a string of bad news for the Clinton campaign in the final days before the Nov. 8 election. On Friday, FBI Director James Comey said the bureau would reopen the investigation into Clinton's misuse of a private email server after finding 650,000 emails on a laptop owned by former Rep. Anthony Weiner, some of which included metadata linking them to Clinton's server.

Should Republican nominee Donald Trump prevail in the election, it's expected that the dollar would weaken as Trump has repeatedly promised to a more protectionist approach to global trade, said Valentin Marinov, chief G-10 currency strategist at Crédit Agricole.

See:Chart shows investors less prepared for Trump win than they were for Brexit shock (http://www.marketwatch.com/story/are-stock-market-investors-complacent-about-a-clinton-election-victory-2016-10-31)

"Historically, bouts of protectionism have been accompanied by dollar underperformance against the euro and yen," Marinov said.

The euro, which is the most heavily weighted constituent of the ICE dollar index, rose 0.6% to $1.1040, adding to its gains after data showed U.S. construction fell 0.4% in September. Though two indicators released Tuesday showed manufacturing activity accelerated in October.

Earlier, the yen weakened slightly after the Bank of Japan left its monetary policy unchanged, but pushed back its expectations for when it would hit its inflation target.

Pound slips

The pound weakened against the dollar and the euro after the CIPS Manufacturing purchasing managers index came in slightly below expectations, derailing an earlier rally. The U.K.currency climbed on Monday after Bank of England Gov. Mark Carney said he'd stay at the helm of the central bank until 2019, defying critics who had called for him to step down.

The extension means Carney will stay in office through the U.K.'s Brexit process, which "should help contribute to the securing of an orderly transition to the U.K.'s new relationship with Europe," he wrote in a letter to Chancellor of the Exchequer Philip Hammond.

The euro rose 0.7% to 0.90 pence, while the pound weakened 0.1% to $1.2223.

Aussie, yuan rally after strong China data

The Australian dollar was one of the biggest gainers among major currencies on Tuesday after the Reserve Bank of Australia left interest rates unchanged.

RBA Gov. Philip Lowe highlighted Australia's robust economic growth and inflation in his policy statement, which market strategists and investors interpreted as hawkish.

"The combination of robust growth and inflation ismaking it less likely that the RBA will ease," Marinov said.

Strong Chinese data also helped lift the Aussie, which is seen as a proxy for Chinese growth, Marinov added. That data also helped support the Chinese yuan, which has been weakening steadily against the dollar since the start of the year. In China's onshore market, the dollar slipped 0.1% to 6.76 yuan. The Aussie rose 0.7% to 76.59 U.S. cents.

The greenback posted strong gains in October as investors priced in a higher likelihood that the Federal Reserve will raise interest rates in December. But ultimately, the outlook for the dollar remains uncertain as investors brace for several key risk events.

In addition to next week's election, the Fed will deliver on Wednesday a policy announcement after the close of its November meeting.While few expect the Fed to raise interest rates on Wednesday, investors will be looking out for clues that the central bank plans to hike in December, said Fawad Razaqzada, technical analyst at Gain Capital and City Index. Friday's labor-market data will also be closely scrutinized, Razaqzada added.

"By the end of the week, we could have a completely different picture," Razaqzada said.

(END) Dow Jones Newswires

November 01, 2016 11:32 ET (15:32 GMT)

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