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AUD underpinned by upbeat data, NZD steady

[SYDNEY] The Australian dollar edged towards one-month highs on Tuesday after upbeat data on exports and government spending bolstered views the country's economy rebounded smartly in the second quarter.

The Australian dollar was hovering around US$0.7960, up from Monday's US$0.7943 and within sight of US$0.7997 touched last week, the highest since Aug 1.

It dipped briefly when the Reserve Bank of Australia (RBA) left interest rates at a record low of 1.50 per cent, as expected, and again cautioned that a further rise in the currency would hinder economic growth.

However, the RBA also noted that recent data supported its forecasts for a gradual pick-up in growth this year.

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Australia's net exports added 0.3 percentage points to GDP growth last quarter, when most analysts had expected a small subtraction, official figures showed on Tuesday.

Other data showed government spending was surprisingly upbeat in the quarter, tilting the risks to the upside for the gross domestic product (GDP) report due on Wednesday.

"Better-than-expected net exports and government spending means Q2 GDP is likely to bounce strongly after last quarter's weather-affected read," said NAB economist Tapan Strickland.

He expected growth of 0.9 per cent in the second quarter, revised up from an initial 0.6 per cent. That would be a marked improvement on the first quarter's pedestrian 0.3 per cent pace, and faster than even the United States.

Such an upbeat result could help offset geopolitical tensions which have been plaguing the Aussie in recent days. The currency is often used as a liquid proxy for risk in Asia.

The currency came under selling pressure after South Korean media, citing an unidentified intelligence source, said Pyongyang was seen moving what appeared to be an intercontinental ballistic missile (ICBM) towards its west coast.

The New Zealand dollar was a shade firmer at US$0.7177, from US$0.7141 the previous day. The Kiwi was still near three-month lows after falling 4.5 per cent in August amid jitters over the country's hotly contested election.

"Further tests lower on a TWI basis still look likely in time, especially with election uncertainty heating up," said Philip Borkin, senior economist at ANZ Bank, referring to the basket of currencies the New Zealand dollar is measured against.

The currency was already at four-month lows on a trade-weighted basis.

Investors will watch an auction due overnight for dairy, the country's largest goods export, with futures markets pointing to a price rise of around three per cent.

New Zealand government bonds eased, sending yields one basis points higher at the long end of the curve.

Australian government bond futures slipped in the wake of the strong domestic data, with the three-year bond contract down 5 ticks to 97.980.

The 10-year contract fell 4 ticks to 97.3400.

REUTERS