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imageSYDNEY/WELLINGTON: The Australian dollar eased off four-year lows on Tuesday after a rebound in commodity prices caused a sharp squeeze of bearish positions. Traders were awaiting the Reserve Bank of Australia's (RBA) monthly policy review and the tone of its statement at 0330 GMT.

The central bank is considered certain to hold rates steady for a 16 straight month at a record low of 2.5 percent but could again note the Aussie was high by most valuations.

The Australian dollar waiting anxiously at $0.8480, having dropped to a fresh four-year low of $0.8417 on Monday. Hourly support was found at $0.8475.

It got some relief after data showed building approvals shot up 11.4 percent in October, versus forecasts of 5 percent.

Also helping was that net exports made a healthy contribution to economic growth last quarter, setting the scene for a solid GDP report due out on Wednesday.

There was some notable action in government bonds as the spread between US and Australia 10-year yields dropped below 80 basis points overnight for the first time since 2006.

It was last at 86 basis points. Australian government bond futures fell but remained near two-year highs.

The three-year bond contract shed 3 ticks to 97.620. The 10-year contract eased 8.5 ticks to 96.895 in a bearish steepening of the curve.

The New Zealand dollar traded at $0.7875, after a recovery in global oil prices prompted short covering in the commodity-linked currency, lifting it from a low of $0.7777. The kiwi outperformed against the Aussie, which plumbed a 4-1/2-month low of NZ$1.0755.

It also pushed up to 93.45 yen, approaching a five-year high around 93.70 yen hit last month.

Yet it may face downward pressure if global dairy prices fall at a fortnightly auction later in the day.

Prices for New Zealand's biggest export earner have dropped to a five-year low, having lost roughly 50 percent of their value so far this year due to increased global supply.

A further easing will likely prompt dairy co-operative Fonterra to cut the price it expects to pay its farmers, in a blow to national income.

New Zealand government bonds slipped, pushing yields 3 basis points higher at the longer end.

Copyright Reuters, 2014