By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, Feb 14 (Reuters) - The Australian dollar nudged higher on Tuesday after a business conditions indicator jumped to near decade highs but the currency struggled at 77 U.S. cents, which is proving to be a crucial barrier.
The Australian dollar AUD=D4 added 0.35 percent to $0.7665, coming off a three-month high of $0.7696 hit in early February.
The Aussie has traded in a sideways direction since the beginning of the month, failing persistently at $0.7700, despite a recent surge in the price of iron ore - Australia's top export earner.
Earlier in the session a survey of business conditions jumped to the highest in about a decade as firms reported a pick up in sales and employment, the latest in a string of reports pointing to gathering momentum heading into 2017. Reserve Bank of Australia watches this survey and will be encouraged by the broad-based improvement," said Annette Beacher, chief Asia-Pac Macro Strategist at TD Securities.
Technical analysts expect the Aussie to find chart support at 76 U.S. cents, but the struggle to penetrate the $0.7700 mark will likely continue.
The near-term prospect for the Aussie will also be determined by the greenback, which has been on an uptrend this month. The U.S dollar index .DXY was near a 3-1/2 week high led by the potential for economic stimulus under President Donald Trump.
The dollar also got a lift from speculation Federal Reserve Chair Janet Yellen will reiterate her positive view of the U.S. economy while signalling more rate hikes at congressional testimony on Tuesday.
"If you put a multifactor model of the drivers of the Aussie dollar together, there is every chance you'd end up with a value above 77 cents," said Greg McKenna, chief market strategist at AxiTrader.
"But so far, the Aussie is not benefiting from the positive lift in risk appetite, nor the surge in commodities. It's possible that the market has already factored the shift back toward positivity about Trump and reflation," he said.
Across the Tasman Sea, the New Zealand dollar NZD=D4 held at $0.7179, after hitting a fresh 3-1/2 week low of $0.7156 on Monday.
The Kiwi was knocked off a three month peak last week after the Reserve Bank of New Zealand signaled it would keep rates at record low for two years, hosing down bets of a rate hike later in 2017. still expect the Kiwi to pick up on strong domestic growth, thanks to robust migration and a revival in the price of milk, New Zealand's biggest goods export earner.
New Zealand government bonds 0#NZTSY= eased, sending yields 2.5 basis points higher.
Australian government bond futures fell, with the three-year bond contract YTTc1 down 7 ticks at 97.98. The 10-year contract YTCc1 5 ticks to 97.2150. (Editing by Sam Holmes)