By Cecile Lefort and Ian Chua
SYDNEY/WELLINGTON, Oct 20 (Reuters) - The Australian and New Zealand dollars crept cautiously higher on Tuesday, though the market lacked inspiration following underwhelming economic data out of China.
The Australian dollar AUD=D4 inched up to $0.7260, from $0.7246. Initial support is found at a key retracement level of $0.7235-40 with a major guardrail near 72 cents.
It was marginally supported after minutes of the Oct. 6 policy meeting showed the Reserve Bank of Australia (RBA) saw signs economic activity was rebalancing toward sectors outside of the struggling mining industry. urn:newsml:reuters.com:*:nRUAJLEB9I
The RBA held rates steady at a record low of 2.0 percent earlier this month, but offered no guidance on the prospect of a further cut.
Yet, financial markets have narrowed the odds of an easing in part to offset a surprise 20-basis point increase in mortgage rates by Westpac, the country's second largest lender.
Economists have more doubts.
"The minutes said the RBA was comfortable with the banks' changes to help shore up financial stability, so those that said 'Westpac hike means November cut', well, those minutes dilute that," said Annette Beacher, chief Asia-Pacific macro strategist at TD Securities.
Interbank futures pricing 0#YIB: give a 28 percent chance of a cut at its next meeting on Nov. 3, while they are fully priced for a move early next year.
Across the Tasman Sea, the kiwi dollar hovered around 68 U.S. cent NZD=D4 following a directionless session on Monday. In the absence of fresh drivers, it remained in consolidation mode after a recent rally from $0.6235 to $0.6897 ran out of steam.
The kiwi's recent upbeat performance has in part been driven by a stabilisation in dairy prices, which recently rebounded from 12-year lows. Dairy is the country's top export earner.
Expectations that the Reserve Bank of New Zealand will hold rates steady next week, pausing after three straight cuts, have also helped.
The market is now waiting for the outcome of a twice-monthly global dairy auction due later in the day, though some analysts warned the result might not be the catalyst for further gains.
New Zealand government bonds 0#NZTSY= were little changed.
Australian government bond futures dipped, with the three-year bond contract YTTc1 off one tick at 98.210. The 10-year contract YTCc1 slipped 2 ticks to 97.3550, while the 20-year contract YXXc1 also shed 2 ticks to 96.8050.