SYDNEY/WELLINGTON: The Australian and New Zealand dollars extended gains on Tuesday, buoyed by a broadly weak US counterpart and a recent rally in metals prices including copper and iron ore.
The Aussie rose to $0.9266 from $0.9247 in early trade, having jumped nearly 1 percent in the prior session as investors continued to trim short positions.
Soft US housing data offered an excuse to sell the greenback and added to the perception the US Federal Reserve is in no rush to trim its stimulus programme.
That is one reason the Aussie dollar has managed to recoup some ground after skidding to a three-year trough below 90 cents earlier this month.
"The market was very short the Aussie and very long the US dollar so there is a bit of positioning squaring," said Matthew Johnson, a rate strategist at UBS, seeing room for the currency to test $0.9340 in the short-term.
Rising metal prices, particularly in iron ore <.IO62-CNI=SI>, Australia's top export earner, lent further support to the Aussie. The bulk commodity topped $130 a tonne this week for the first time since May.
It faces major resistance around $0.9300/50, but traders said a clear break could see a run towards $0.9500.
The Aussie's recent strength will be tested on Wednesday where a tame domestic inflation reading will only fuel speculation of an August rate cut from the Reserve Bank of Australia (RBA).
Swap markets see a two-in-three chance of an interest rate cut next month, while interbank futures <0#YIB:> have a 25-basis-point easing to a record low of 2.5 percent fully priced in by October.
UBS's Johnson said that should the inflation and RBA outcome surprise, the Aussie could test $0.9600.
The New Zealand dollar climbed a one-month peak of$0.8007, helped by cross selling in euro and yen.
While a sluggish US dollar was the main supportive factor for the kiwi, market participants saw the risk of some selling pressure ahead of the Reserve Bank of New Zealand's policy review on Thursday.
"The RBNZ will likely classify the NZD as overvalued, adding to pressure for a small reversion that should be bought," ANZ analysts said in a note.
Many in the market expect a fall below $0.7900 to spark buying given that that level has held over the past few days. Offers were seen above $0.8000, which were expected to cap significant gains in the near term. The kiwi dollar last traded at $0.8000.
The RBNZ is expected to repeat its outlook of interest rates on hold at a record low 2.5 percent this year. Many economists forecast the central bank to raise rates by 25 basis points in early 2014 as inflation pressures pick up and housing market prices continue to climb.
New Zealand government bonds were little changed, keeping yields flat across the curve.
Australian government bond futures rose to one-month highs with the three-year bond futures last at 97.370 and the 10-year contract at 96.340.
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