SYDNEY/WELLINGTON: The Australian dollar proved resilient on Tuesday as demand against the euro and a smaller-than-feared trade deficit at home helped offset a global flight to safe-haven assets such as the yen and government bonds.
The Australian dollar edged up to $0.8118, having touched a 5-1/2-year trough of $0.8036 on Monday. Resistance was found at the 10-day moving average of $0.8127.
It gained around a quarter of a US cent after data showed Australia's trade deficit was not as large as feared in November at A$925 million.
While the price of iron ore, Australia's largest export earner, has fallen steeply, the country is shipping much more of the product.
But Elias Haddad, a senior currency strategist at Commonwealth Bank, doubted the Aussie bounce would last.
"Fundamentals remain weak with falling commodity prices, narrowing interest rate differentials between the United States and Australia and unimpressive Chinese economic activity," said Elias Haddad, a senior currency strategist at Commonwealth Bank. Still, the Aussie held its ground against the euro and pound with the common currency dropping near its weakest in one-month around A$1.4718.
Much of the pressure for the euro came on speculation the European Central Bank will take bolder measures this month to boost its economy and fight looming deflation. Technical support was found at A$1.4660, the 61.8 percent retracement of the November-December rally and the 55-day moving average.
Across the Tasman sea, the New Zealand dollar also held up well at $0.7703, clawing back from a four-week low of $0.7619 hit on Monday.
The kiwi kept gains against the broadly struggling euro , which traded around NZ$1.5526, near a 5-1/2-month low of NZ$1.5450 touched the previous day.
It hovered around NZ$1.0510 versus the Aussie, which extended its recovery from a post-float trough around NZ$1.0410 hit last week.
The kiwi risks another test of its 2014 low against the greenback if global dairy prices resume their slide at a fortnightly auction later in the day.
Prices for dairy products, New Zealand's biggest export earner, dropped roughly 50 percent last year due to expanding global supply and falling demand from China.
A further fall would dent the kiwi as it could widen the hole in farmers' incomes, tempering overall economic growth.
New Zealand government bonds rose, tracking gains in global bond prices and pushing the 10-year yield 5 basis points lower to 3.59 percent, its lowest since mid-2013.
Tracking US Treasuries, Australian government bond futures leapt to 2-1/2-year highs, with the three-year bond contract up 3 ticks at 97.920. The 10-year contract added 5 ticks to 96.3400 in a bullish flattening of the curve.
The spread between 10-year and 3-year government bonds narrowed to 58 basis points, the thinnest since May 2013.
The 10-year cash yield fell to 2.7 percent, from 3.1 percent last month as the improving trade figures did not alter expectations of an interest rate cut by the Reserve Bank of Australia.
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