Australian dollar retreats from 2-1/2 year highs

SYDNEY: The Australian dollar eased against the greenback on Tuesday, retreating from 2-1/2 year highs hit in the previous session, as the US dollar found some support against a falling Chinese yuan.

The Australian dollar, often used as a liquid proxy for risk, fell 0.27% against the US dollar after having hit its highest levels since June 2018 at $0.7578 on Monday.

New Zealand's kiwi was lower at $0.7074 on Tuesday, after finishing the previous session at $0.7082.

"We are watching signs of stimulus deal and vaccine news, but I think that what you've seen today is (the) USD/CNY has rallied, I think that's been at the epicenter and that reverberated across the board," said Chris Weston at Melbourne broker Pepperstone.

The yuan eased to a near two-week low against the dollar on Tuesday, after the central bank made its biggest ever injection of medium-term funds.

China's statistics bureau said on Tuesday it could make targeted policy adustments as the economy improves. Data on earlier separately showed China's factory output grew at the fastest pace in 20 months in November.

"The markets might have been hoping for more," said Steven Dooley, Western Union's APAC currency strategist." "Losses (for the Australian dollar) extended after Chinese data, notably industrial production, were reported in line with expectations."

The Australian dollar has benefited in recent weeks from soaring prices for iron ore, the country's top export, and from signs of an economic rebound at home.

Australia's labour market is recovering faster than expected thanks to an easing in coronavirus restrictions and a rebound in consumer spending, the country's central bank said on Tuesday, while promising to focus on lowering unemployment.

Australian government bond futures were flat, with the three-year bond contract steady at 99.804 and the 10-year contract unchanged at 99.982.

New Zealand government bonds were lower, sending yields about 1-2 basis points higher across the curve.