[SYDNEY] The Australian and New Zealand dollars were biding time under recent highs on Tuesday, as investors showed caution ahead of key policy decisions later in the week.
The Australian dollar was steady at US$0.7712, and off an 10-month peak of US$0.7836 touched last week. It has rallied 0.7 per cent so far this month and was up 4 cents so far this year.
Support was found at US$0.7669 and resistance at US$0.7730.
The New Zealand dollar rose 0.3 per cent to US$0.6874, but was still a fair way off a 10-month high of US$0.7055.
The Antipodean currencies were pinned down by subdued commodity prices such as iron ore, Australia's top export earner.
Also capping demand for risk assets were policy meetings by the U.S. Federal Reserve, Japan's Bank of Japan (BOJ) and the Reserve Bank of New Zealand (RBNZ), all due out on Thursday local time.
"Markets will remain myopically focused on Thursday's central bank extravaganza," said Sam Tuck, senior FX strategist for ANZ Bank. "With all due respect to the RBNZ and BOJ, the focus this week will be on what the Fed delivers at 6 am on Thursday NZT," said Mr Tuck.
Mr Tuck expects a short term range for the Kiwi of US$0.6750 to US$0.6900.
While the Fed is considered certain to stand pat on interest rates, the RBNZ's decision to ease or not is more of a line-ball call.
A Reuters poll of 23 economists shows the vast majority expect rates to be kept steady at 2.25 per cent, while markets imply around a 50-50 chance of a cut on Thursday.
In contrast, the Reserve Bank of Australia is seen likely to keep rates steady in coming months, with debt futures implying a one-in-four chance of an easing by June.
Such differences are reflected in the spread between Australian and New Zealand two-year bonds which dropped to 8 basis points, the thinnest in three years.
Australian government bond futures fell to one-month lows, with the three-year bond contract off 2 ticks at 97.940. The 10-year contract also lost 2 ticks to 97.3350, while the 20-year contract was steady at 96.7650.
New Zealand government bonds were largely flat at the short end while yields were a tad higher at the long end. "NZ's high relative yields remain attractive in a global context and are likely one factor in the NZ rates market's outperformance," said BNZ Currency Strategist Jason Wong.
The same applies to Australia's two-year cash yields which jumped to 2.1 per cent, the highest this year.