Aussie a touch lower at $1.0472 vs $1.0485 early, having risen as high as $1.0506 overnight, very close to an 11-week peak of $1.0515 set last week.

Traders said Aussie hemmed in by central bank and option players on both sides of the market. Talk of large option barriers at $1.0525 and $1.0550, while Australian exporters cited ahead of $1.0450.

NZ dollar steady at $0.8337, having hit an 10-week high of $0.8355 Monday.

Kiwi buoyed after data showed housing prices hit a fresh record high, while electronic card retail spending rose in November.

Also helping is dairy exporter Fonterra, which on Monday raised its payout forecast to farmers, saying it expected dairy prices to rise in the coming months. Dairy is New Zealand's top export.

Kiwi has been recently supported after the Reserve Bank of New Zealand's suggestion last week that it was not considering cutting interest rates. Markets pricing implies that the next move on rates will be higher, albeit not for a while.

Kiwi may test strong resistance around $0.8360, with support seen at $0.8308, a Nov. 7 high. BNZ strategists say speculative long positions appear to be stretched, raising the risk that a downward correction may be in store.

Upbeat NZ data weighs on the Aussie vs kiwi, sending the Aussie to a one-month low around NZ$1.2550 before it crawls back to NZ$1.2560. Aussie is down about 2 pct since hitting a two-month high of NZ$1.2831 in mid-November.

Aussie and kiwi near 8-month peaks against the yen , but off one-month highs struck on Monday vs the euro . The common currency broadly recovered as nerves calmed over Italy's latest political turmoil.

A private report showed Australian business confidence slumped to its lowest level in more than three years in November, while conditions stayed weak, bolstering the case for further cuts in interest rates.

Markets are pricing in around a 50-50 chance of a cut in the cash rate to 2.75 pct in February, when the Reserve Bank of Australia (RBA) holds its next policy meeting. Last week, it eased by a quarter point to a record-matching low 3.0 pct.

Australian government bonds gain, with the three-year contract 0.03 points higher at 97.400. The 10-year contract adds 0.02 points to 96.955, the 50 pct retracement of the July-August decline. A sustained break above would open the way to a test of 97.044, the 61.8 pct of the same move.

NZ government bonds firm sending yields 1.5 basis point lower across the curve.

Center>Copyright Reuters, 2012