By Cecile Lefort
WELLINGTON, Oct 6 (Reuters) - The Australian dollar dipped on Tuesday after local data showed a deterioration in the trade deficit, while investors awaited the outcome of the Reserve Bank of Australia's (RBA) monthly policy review. The New Zealand dollar held near five-week highs.
The Australian dollar slipped to $0.7078, from $0.7093 early, after a report showed the trade deficit grew to A$3.1 billion against forecasts of A$2.55 billion.
Hourly support was found at $0.7055 with resistance at $0.7150.
Focus in on the RBA decision due at 0330 GMT. While it is widely expected the central bank will keep rates at a record low of 2 percent, the market will scrutinise the accompanying policy statement for clues on the central bank's next move.
Only one third of 25 economists polled by Reuters forecast more easing in the medium term, but future debt markets 0#YIB: are fully priced for a cut early next year.
Dealers said if the RBA were to reinstate an easing bias, as expected by some investors, the Aussie could drop below 70 cents. Should the statement be similar to the September review, however, the local dollar could test the September 22 peak of $0.7159.
The Aussie had more luck against its kiwi cousin and bounced off four-month lows touched on Monday. Charts, however, suggested it remained vulnerable.
The New Zealand dollar NZD=D4 eased to $0.6485, from $0.6509, but was still close to a five-week peak of $0.6532 touched on Monday. Investors were awaiting the outcome of an overnight dairy auction.
"NZX futures predict a 17 percent rise in whole milk powder prices, which should keep the kiwi supported on crosses for now," said Sean Callow, a senior strategist at Westpac.
The kiwi dollar is sensitive to prices of dairy, the country's top export earner.
Domestically, a private survey showed business confidence fell to four-year lows in the third quarter on concerns over slowing growth in China and a drought.
New Zealand government bonds slipped, sending yields as much as 8 basis points higher on the long end of the curve.
Australian government bond futures eased, with the three-year bond contract off 5 ticks at 98.220. The 10-year contract fell 6 ticks to 97.3600.