SYDNEY/WELLINGTON: The Australian and New Zealand dollars edged back from one-month highs versus the yen on Tuesday as caution set in ahead of key event risks including Australia's inflation data and a report on China's manufacturing sector.
The Aussie dollar touched a high of 82.69 yen, having risen three big figures in just two weeks, on expectations of more policy easing in Japan. That would make the yen more attractive as a funding currency for carry trades.
But profit-taking knocked the Aussie back to 83.45, down 0.1 percent on the day. Similarly, the kiwi hit a high of 65.46 yen , before giving up all of the day's gains to last stand at 65.19, down 0.3 percent.
The Japanese government on Tuesday piled fresh pressure on the BOJ to ease again, with the economics minister saying he wanted to attend next week's rate review to reiterate a call for bolder action to bolster the economy.
Versus the US dollar, the Aussie was only a touch softer at $1.0314. It has retreated from last week's peak of $1.0382, but remained well off this month's trough of $1.0145.
Also subdued, the kiwi was at $0.8164, having traded in a slim range roughly between $0.8163 and $0.8183 so far on Tuesday.
The next focus is Australia's Q3 inflation report due at 0030 GMT on Wednesday. Forecasts centred on a tame reading of 2.2 percent for underlying inflation, at the bottom end of the Reserve Bank of Australia's 2-3 percent target.
"It needs to be a benign number to keep easing hopes in place given the market is currently pricing in over 80 percent chance of a cut in November, so all of the risks are to the upside. If we get a hotter-than-expected number it could catapult the Aussie higher," David Scutt, a trader at Arab Bank in Sydney said.
Interbank futures imply a two-in-three probability of a quarter point cut in the 3.25 percent cash rate in November, and are fully priced for 3 percent by Christmas.
The market was also waiting for HSBC's latest report on China's manufacturing sector due after midday on Wednesday.
Any signs that the slowdown in the world's second biggest economy has bottomed out will be positive for risk appetite as well as for the Antipodean currencies. China is a major export market for Australia and New Zealand.
Analysts said Thursday's rate review from New Zealand's new central bank governor, Graeme Wheeler, will also be closely watched.
"There is no case for a rate cut at this meeting, but if the Governor's outlook is more pessimistic than our own, there is the risk of a soft easing signal, hurting the NZ dollar," said Westpac senior strategist Imre Speizer, adding that Wheeler may engage in some jawboning to talk down the currency.
Wheeler is expected to hold the benchmark rate at a record low 2.5 percent on Thursday, where it has been since March last year.
The kiwi might bounce if Wheeler dishes up a similar assessment and statement as seen in September, which would dampen the hopes of those betting on rate cuts.
Speizer said the outlook for the kiwi this week is negative, with a test of support at $0.8110 possible, while the topside is capped around $0.8230.
Australian government bonds slipped, tracking losses in US Treasuries on Monday. Three-year contract fell 0.050 points to 97.490, while the 10-year contract eased 0.040 points to 96.900.
The fall came as Australia's government announced plans to increase sales of Treasury bonds by A$10 billion ($10.3 billion) in the year to June, 2013, while cutting a matching amount of short-term note sales.
New Zealand government bonds clawed back most of their earlier losses and closed with only a hint of an offered tone, with yields mostly flat.
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