SYDNEY/WELLINGTON: The Australian dollar eased a fraction on Tuesday as the market held its breath ahead of a ruling on the euro zone's bailout fund and a US Federal Reserve policy decision that could set the path for global markets for weeks to come.
The Aussie marked time at $1.0328, from $1.0332 in New York and $1.0401 on Friday, its highest since Aug. 27.
Traders said weak Asian bourses and light profit-taking modestly weighed on the local currency, with some analysts forecasting more downside.
"We think the AUD has unfinished business below $1.02 and a test of $1.0000 is not unreasonable," said Sue Trinh, a senior strategist at RBC Capital Markets.
Still, it has held up relatively well in the past few weeks in spite of negative developments in China and Japan, Australia's two biggest export markets, and at home with soft data on jobs and retail sales.
The Aussie dollar remains broadly well supported thanks to a global yield hunt, particularly from central banks and sovereign funds from far afield.
The Antipodean currencies could face a serious test on Wednesday as Germany's constitutional court is set to rule whether the nation can legally participate in the euro zone's permanent bailout fund.
"The euro has the potential to break higher or fail depending on the court decision," said a trader at a European bank in Singapore.
The common currency has made hefty gains against both the Aussie and kiwi, rising around 6 percent since early August, as investors trimmed their massive short euro positions.
It was last at A$1.2355, nearing a two-month peak of A$1.2390 hit last week. Charts show a positive trend as long as the euro keeps above the 10-day MA, a level it has been holding since mid-August.
Resistance is seen around A$1.2390, ahead of A$1.2438, the 200-day MA. Against the kiwi, the euro was last at NZ$1.5768 , off NZ$1.5903, its strongest since late June.
NEW ZEALAND DOLLAR
The New Zealand dollar consolidated at $0.8096, from $0.8120 in late local trade on Monday, when it touched a two-week high of $0.8134.
The Antipodean currencies could get a tail wind should the US Federal Reserve start a much-expected round of quantitative easing at its policy meeting on Thursday.
"Threats of more money printing from Europe and the likelihood of actual QE from the US this week puts upward pressure on them as newly printed money looks for higher yields," said Derek Rankin of Rankin Treasury Advisory.
Near-term support for the NZ dollar was seen around the 20-day MA at $0.8060, with Monday's high of $0.8134 the first hurdle higher.
Data released on Tuesday showed New Zealand electronic retail card spending rose 3 percent in August, the strongest in nearly 10 years, and a slight lift in house prices.
The kiwi briefly dipped after the country's Finance Minister said the currency was overvalued and hurting exporters. However, he also said it would be irresponsible for the government to try and devalue the kiwi because of the impact on the economy and living standards.
New Zealand government bonds closed fractionally firmer, while Aussie bond futures were mixed. The Australian three-year futures contract eased 0.015 points to 97.525 while the 10-year contract was a touch firmer at 96.970.
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