WELLINGTON/SYDNEY: The Australian dollar continued to recover in baby steps from last week's drubbing, while the New Zealand dollar remained buoyant but hesitated ahead of a three-year peak.
The Aussie was a touch firmer on Tuesday at $0.9385, having earlier flirted with resistance at $0.9395, a level representing the 38.2 percent retracement of last week's drop from $0.9505 to $0.9327.
It was also slightly higher against the euro and yen.
Last week Reserve Bank of Australia (RBA) Governor Glenn Stevens said the currency was overvalued by most measures and that it could see a sharp correction in time.
The warning prompted a swift sell-off in the Aussie, although many still see the relatively high-yielding currency as very attractive, particularly in a low-volatility environment.
"The global search for yield is continuing to support the Australian dollar for longer but is highly unlikely to stimulate a punch back to parity in our view," said Annette Beacher, head of Asia-Pacific Research at TDSecurities in Singapore.
"The RBA gave a fairly clear signal during last Thursday's speech that an Australian dollar above 0.94 was not welcome."
The kiwi has also been chased by yield-hungry investors in expectation the Reserve Bank of New Zealand will deliver a fourth consecutive rate rise on July 24.
But since hitting a three-year peak at $0.8795 late last month, it has been searching for impetus to break higher. "In the near term, fundamental drivers don't matter as much as whether the speculative flow wants to sell it (NZ dollar) or buy it, and right now they want to sell it because they think it's quite high," said Westpac senior strategist Imre Speizer.
The kiwi was flat on Tuesday at $0.8760, having shrugged off some weakness that followed a retreat in business sentiment in a closely watched survey.
The New Zealand Institute of Economic Research's quarterly survey of business opinion fell to a net 32 percent, from a near-14-year high of 52 percent, with the results pointing to a slowdown in the economy after a surge in growth.
The survey also pointed to an increase in inflationary pressures and capacity constraints, backing the view the central bank will carry on with a gradual tightening of policy.
Near-term support for the kiwi was seen at the overnight low of $0.8714, while the three-year peak of $0.8795 still capped the topside.
Speizer said he expected the kiwi to stay in a $0.8700 to $0.8800 range this week before easing further, with markets likely to be largely sentiment-driven.
On Wednesday, the assistant governor of the RBNZ gives a speech on the "potential output" of the New Zealand economy. Data due this week includes retail sales, manufacturing activity and food inflation.
For Australia, the key focus is a monthly employment report due on Thursday.
Analysts polled by Reuters expect a gain of 12,000 jobs in June, following a loss of 4,800 in May.
There was barely any reaction to a survey showing Australian business confidence and conditions improved last month, as investors waited for Chinese inflation data on Wednesday.
Yields on New Zealand government bonds were fractionally lower.
Australian bond futures were mixed, with the three-year contract steady at 97.330.
The 10-year contract edged up 2.5 ticks to 96.425, nearing a 12-month high of 96.470 reached late last month.
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