By Wayne Cole and Tom Westbrook
SYDNEY/WELLINGTON, March 21 (Reuters) - The Australian dollar held near four-month peaks on Tuesday as the country's central bank stepped up warnings about overheating in the housing market, leading investors to pare the already scant chance of a further cut in interest rates.
The Aussie was standing at $0.7710 AUD=D4 after reaching
$0.7748 overnight, which was the highest since early November when it got as far as $0.7778.
A break of November's barrier would put it in territory not visited since April last year and set up a push to the next chart target around $0.7836. That also makes these levels extremely tough resistance, which could be hard to pierce.
The gains have mostly been driven by broad weakness in the U.S. dollar after the Federal Reserve emphasised further tightening would be gradual following its rate hike last week.
The Reserve Bank of Australia (RBA) is nowhere near raising rates itself, but any chance of a cut has vanished as it highlighted risks in the local housing market.
Minutes of its March policy meeting out Tuesday showed housing was very much on the mind of board members.
"The language around the housing market conveyed a sense of increased concern over the medium-term risks emerging from rising prices, increasing supply, and weak rental returns," said Su-Lin Ong, a senior economist at RBC Capital Markets.
"Our sense is that there is building pressure for additional macro prudential action."
Regulators have already told banks to limit growth in their mortgage books to 10 percent a year and many have recently been raising rates on investment loans.
As a result, rate futures 0#YIB: are now pricing in virtually no chance of another cut in the cash rate and some possibility of a hike early next year.
The New Zealand dollar NZD=D4 was a shade softer at $0.7045 after touching a two-week peak at $0.7080 overnight.
The kiwi is back on a "slow-grind-higher trajectory", ANZ Bank senior rates strategist David Croy said in a research note.
"Growth is enviable, interest rates are enviable, the political scene is stable, and even the current account is under control. There isn't much not to like here, even if some recent data has come in a bit below expectations," he said.
The currency still has to weather a global dairy auction late Tuesday, which could well see another drop in prices for the country's biggest export earner.
New Zealand government bonds 0#NZTSY= gained, sending yields 1.5 basis points lower.
Australian government bond futures were little changed. The three-year bond contract YTTc1 was flat at 97.950, while the 10-year contract YTCc1 added 1.5 ticks to 97.1500.
(Editing by Randy Fabi)