By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, March 14 (Reuters) - The Australian dollar hovered near eight-month highs on Monday, underpinned by the relatively high yields offered by local debt, while its New Zealand counterpart struggled for traction following a tough week.
The Australian dollar AUD=D4 stood at $0.7568, having touched on Friday its highest since July at $0.7583. A break above would test $0.7655, the 61.8 percent retracement of the $0.8184-$0.6827 move.
It has bounced 4 cents so far this month, in part due to broad U.S. dollar weakness on the back of expectations the U.S. Federal Reserve may draw out its tightening cycle.
The Fed seen almost certain to stand pat at its policy review this week, but analysts will look for any hint on the timing of the next move.
Supporting the Aussie were figures from the Commodity Futures Trading Commission showing speculators becoming more bullish.
"Leveraged funds have now turned net long in AUD following their $0.9 billion net buying to take their overall net long position to $0.7 billion," ANZ said in a note. Aussie has showed remarkable resilience to disappointing data out of China, its key export market, as well as volatility in iron ore prices. ECONCN
Across the Tasman Sea, the New Zealand dollar NZD=D4 was steady at $0.6740 and well above last week's $0.6618 low.
The Kiwi took a tumble late last week when the central bank surprised markets by cutting interest rates 25 basis points and signalled more to come.
However, it has "regained much of its post-RBNZ-surprise plunge, illustrating the often short-lived impact of such events on currencies," said BNZ Senior Market Strategist Kymberly Martin.
New Zealand government bonds 0#NZTSY= eased, sending yields 2.5 basis points higher across much of the curve.
Australian government bond futures hovered near multi-week lows, with the three-year bond contract YTTc1 off 4.5 ticks at 97.905. The 10-year contract YTCc1 was unchanged at 97.3175, while the 20-year contract YXXc1 shed 1 tick to 96.7825.
Yields on two-year government bonds rose to a three-month peak of 2.1 percent, the same as their New Zealand counterparts.
The New Zealand yield curve has steepened sharply after last week's interest rate cut and narrowed the premium paid over Australian debt.
The spread between 10-year New Zealand and Australian government bonds has shrunk to 34 basis points, having fallen to 32 basis points on Friday, the smallest in two years.
The different interest rate outlooks of the two Antipodean nations is a major support for the Aussie dollar which hovered near five-month peaks at NZ$1.1252. AUDNZD=R