A$, NZ$ hold firm, wary of EU disappointment

SYDNEY/WELLINGTON: The Australian dollar and New Zealand held gains on Tuesday, underpinned by improving investor confidence globally and hopes of progress in EU debt talks.

Aussie briefly dipped to session low of $1.0458, after the RBA reiterated uncertainty in global markets was the key factor behind not raising interest rates earlier this month. RBA kept rates on hold at 4.75 pct on Aug. 2 but noted inflation was picking up.

Aussie consolidates at $1.0500, having rallied overnight from $1.0425. Major resistance in the $1.0505-25 zone, the 50 percent retracement of the Aussie's decline from $1.1081 to $0.9927. Support seen at $1.0391.

Debt futures trim a little more of their recent huge gains as markets steady. Interbanks still imply an easing of 93 bps by year-end, but that had been as much as 165 basis points last week.

Overnight index swap rates have also edged up from deep lows, with three month rates at 4.4 pct compared to as low as 3.875 percent at one stage last week.

Australian bond futures ease, with the 3-yr contract down 0.08 points to 96.010 and the 10-year off 0.055 points to 95.390.

The NZ dollar consolidates at $0.8320 from $0.8320 in New York. Support for the kiwi seen around $0.8273, with resistance at $0.8375 and then $0.8412.

The Aussie-kiwi cross retains overnight gains which had catapulted Aussie two cents higher at a two-week peak of NZ$1.2649. Last at NZ$1.2606, well-off last week's one-year low of NZ$1.2302.

Against a soggy Swissy, the Antipodeans pull back a little from Monday's large gains. Aussie at 0.8227 francs, well-away from last week's 3-year trough of 0.7149. Kiwi at 0.6527 francs, some 8 cents higher a week ago.

NZ government debt a touch softer, sending yields a tick higher along the curve.

Market now waiting for outcome of a Franco-German summit, with a news conference due at 1600 GMT. Merkel and Sarkozy are under pressure to consider for more radical steps, such as eurobonds, but have a habit of disappointing markets.

The European Central Bank showed its intent to defend Italy and Spain by buying 22 bln euros of bonds last week, while leading German business groups called on Monday for joint euro-zone bond issuance

Copyright Reuters, 2010