REUTERS - SYDNEY. The Australian dollar traded in a tight range on Tuesday, as volumes were thin in a holiday-shortened week and ahead of the all-important quarterly inflation report, while its New Zealand cousin hovered near two-month lows.
The Australian dollar held at $0.7127, drifting lower after hitting a two-month top of $0.7206 last week following stronger-than-expected Chinese economic data and a surprisingly soft reading on U.S. core inflation.
That combination helped the Aussie edge above a 200-day moving average of $0.7187 last week for the second time in 12 months.
The Aussie received a further boost following barnstorming domestic labour market data last Thursday.
"We will be watching to see if the 200-day moving average can now act as an important level of technical support," currency analysts at the Commonwealth Bank said in a report while noting that the Aussie had failed to rise above that level in three earlier occasions - April and December 2018, and February 2019.
"AUD/USD will have asymmetric downside risks if the inflation number surprises to the downside."
First-quarter consumer price index (CPI) data is due on Wednesday and analysts polled by Reuters expect a closely watched measure of core inflation to come in around 1.7 percent - undershooting the Reserve Bank of Australia's (RBA) 2-3 percent target band.
The RBA has held its official cash rate at a record low 1.50 percent since August 2016 and has signalled a move lower if the jobless rate trended higher and inflation stayed tepid.
The New Zealand dollar was slightly weaker at $0.6671, languishing near its lowest since early January. The kiwi has fallen or stayed flat in seven of the last 10 sessions.
The currency has been in a downward trend since late March after the country's central bank abandoned its long-standing neutral bias to say its next move in interest rates was likely down.
Last week, the Reserve Bank of New Zealand Governor Adrian Orr told Reuters in an interview an easing bias remains in place for now and a softer global economy contributed to a recent shift to a dovish policy tone.
That followed underwhelming inflation data that further boosted the probability of a rate cut in New Zealand.
New Zealand government bonds were slightly higher with yields down about 2 basis points at the long end of the curve .
Australian government bonds too rose with the three-year contract up 4.5 ticks at 98.60 and the 10-year contract adding 5 ticks to 98.090.
(Editing by Jacqueline Wong)
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