By Cecile Lefort
SYDNEY, Feb 16 (Reuters) - The Australian and New Zealand dollars extended gains on Tuesday after an improvement in risk sentiment fuelled a squeeze of bearish positions, leaving the safe-haven yen with hefty losses.
The Australian dollar AUD=D4 rose to $0.7175, from an early $0.7142 and further away from a low of $0.6973 touched last week.
A break of $0.7242 might see a test to 73 cents, a level not visited since early January.
Much of the gains came from weakness in the yen and euro which had been heavily bought when worries about global growth and European bank debt triggered a flight to safety.
Also underpinning the mood was a surge in commodity prices, from oil to nickel and iron ore, Australia's biggest export earner.
The Aussie popped above 82 yen, AUDJPY=R , having recouped four yen since it hit a four-year trough last week. A break of 82.97 yen, the 61.8 percent retracement of this year's fall would target 86.36, the 2016 peak.
Likewise, the kiwi edged up 0.3 percent to 76.42 yen NZDJPY=R . It has gained more than 3 yen since hitting a six-month trough last week.
The euro lost some ground to A$1.5607 EURAUD=R , having skidded 1.2 percent on Monday after European Central Bank President Mario Draghi said he was ready to ease policy further in March.
Against the kiwi, it eased to NZ$1.6740 EURNZD=R , from a peak of NZ$1.6700 overnight and away from NZ$1.7222 touched last week.
In minutes of its Feb. 2 meeting, the Reserve Bank of Australia reiterated that very low rates and a weaker local dollar were already underpinning growth. RBA kept the cash rate at a record low 2.0 percent and markets imply around a 50-50 chance it will resume easing by mid-year.
Across the Tasman Sea, the New Zealand dollar NZD=D4 rose to $0.6671, from $0.6658 early. It pulled closer to key resistance around $0.6750, a level touched four times this month. A break would target December's peak of $0.6881.
At home, retail sales came in slightly below expectations but still solid with a rise of 1.2 percent. were awaiting later in the session the results of the latest GlobalDairyTrade auction. Dairy is New Zealand's largest export and futures point to a 10 percent fall in whole milk powder prices.
New Zealand government bonds 0#NZTSY= eased, sending yields 3 basis points higher across the curve.
Australian government bond futures retreated further from multi-month peaks, with the three-year bond contract YTTc1 off 3 ticks at 98.140. The 10-year contract YTCc1 eased 2.5 ticks to 97.4650, while the 20-year contract YXXc1 shed 2 ticks to 96.9300.