WELLINGTON/SYDNEY: The Australian and New Zealand dollars held gains on Tuesday, but rising Spanish borrowing costs reminded investors about the debt crisis facing the euro zone country, holding them back from extending the short-covering rally in higher-risk currencies.
* The Australian dollar trades at $0.9855, backing down slightly from $0.9867 in late local trade on Monday, when the Aussie rallied roughly 1 percent on the day to a one-week high of $0.9871.
* The New Zealand dollar trades around $0.7615, a touch lower from $0.7621 late on Monday. It hovers near $0.7630 hit on Monday, when it also climbed 1 percent.
* Investors are wary of pushing the Aussie and the kiwi higher after Spanish benchmark government bond yields rise near levels at which other euro zone countries were forced to seek debt bailouts from the European Union and the IMF.
* The Aussie and kiwi cling to gains made versus the yen on Monday. They stay supported against the euro , which hovers near Monday's trough of A$1.2712, its lowest in nearly a month.
* Aussie steady against the kiwi at NZ$1.2935. Movements in the pair have been relatively subdued in the past few days, highlighting the extent to which the rally in the Antipodeans had been driven by improving risk sentiment, rather than economic fundamentals.
* Having sold off drastically this month, the Antipodeans have rallied for the past three days as investors acknowledge that losses in the Aussie and kiwi may have been overdone, and have trimmed bets that both currencies will fall more in the future.
* Polls at the weekend suggesting that Greek parties supporting the country's debt bailout deal may eke a victory at the country's general election next month had added fuel to the short-covering rally.
* Still, markets see the risk that Greece's ongoing debt problems will eventually prompt the country to leave the euro zone, which could jolt financial markets and raise the risk of other countries leaving the currency bloc.
* As a result, many in the market see any near-term rallies in the Aussie and kiwi as short-lived, particularly with markets braced for another Australian interest rate cut next week.
* Analysts see the possibility that the Aussie may extend its rally to $0.9935, a high hit a week ago, while adding that gains beyond that were unlikely before the Reserve Bank of Australia's policy meeting next week.
* Markets have fully priced in the chance of a 25 basis point cut to the 3.75 percent cash rate, and have partially discounted the risk of an even bigger move, following on from this month's aggressive 50-bps-cut.
* The Aussie also faces technical resistance at $0.9880, its 14-day moving average, which capped the currency's rally on Monday. The Aussie has traded below the average for most of the month.
* The kiwi's 14-DMA at $0.7642 also stands in the way of further upside in the currency, while market participants say a rise above $0.7650 would trigger some selling. Support seen at $0.7520.
* BNZ analysts said that, after three weeks of deep losses in the kiwi, domestic exporters were big buyers of the currency last week.
* "Net NZD buying was broad-based, but particularly notable against the yen and the euro," they say in a note, adding that a dip in the kiwi to $0.7500 and 0.5950 euro would attract more buying from corporate and real money accounts.
* Australian government bond futures edge up 0.010 point to 97.570, hovering near an all-time around 97.700 hit last week amid a global flight to safety. The 10-year cash yield is at 3.175 pct, not far from a trough around 3.080 percent plumbed a week ago -- lows not seen since the 1950s.
* The three-year contract is little changed at 96.880, lingering near a peak of 96.995 hit last week.
* New Zealand government bonds are largely flat, after prices edged lower on Monday. The yield on 2023 debt is around 3.600 percent, not far from a lifetime low of 3.475 percent plumbed last week.
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