By Cecile Lefort and Charlotte Greenfield
SYDNEY/WELLINGTON, March 8 (Reuters) - The Australian dollar held near an eight-month peak on Tuesday, taking a breather following a strong 6-day rally, while its New Zealand counterpart was knocked by a lower dairy price outlook.
The Australian dollar AUD=D4 eased to $0.7420, from an eight-month top at $0.7486 touched on Monday, after investors booked profit following a three-cent rally in just a week.
Heavy yen buying and disappointing trade numbers out of China where exports took a tumble in February, also hampered the Australian dollar. ECONCN
Still, the Aussie is up nearly 2 percent this year, having reversed its January losses.
Resistance was found at $0.7495, the 50 percent retracement of the $0.8164-$0.6827 move with support at $0.7440.
Much of recent strength came after commodity prices bounced and domestic data proved solid.
Prices of iron ore, Australia's top export earner, rocketed nearly 20 percent .IO62-CNI=SI on Monday. Such a surge, if sustained, would significantly improve the nation's terms of trade and also reduce the chances of the Reserve Bank of Australia (RBA) cutting the cash rate.
A top RBA official said the central bank would welcome a slightly lower currency and reiterated there was further scope to ease if needed. 0#YIB: imply a 38 percent chance of a rate cut by mid-year.
Across the Tasman Sea, the New Zealand dollar NZD=D4 edged down to $0.6773, from a peak of $0.6814, after Fonterra FCG.NZ cut its forecast dairy payout.
Fonterra Co-operative Group on Tuesday morning lowered its forecast payout for its farmer shareholders, adding to pressure on New Zealand's beleaguered dairy sector. were now looking ahead to the Reserve Bank of New Zealand's (RBNZ) monetary policy decision due out on Thursday.
The majority of a Reuters poll of 21 economists expect the RBNZ to keep rates steady at 2.5 percent, but also see an easing by mid-year. ECONNZ
"The challenge for the RBNZ on Thursday (assuming it does not cut rates) will be to sound sufficiently dovish to prevent the NZD breaking higher. In the past this has proven to be no easy task," BNZ economist Kim Martin said in a research note.
The spread between New Zealand and Australia's two-year bonds dropped to 29 basis points, the lowest in 18 months.
New Zealand government bonds 0#NZTSY= eased, sending yields 3.5 basis points higher at the long end of the curve.
Australian government bond futures hovered near multi-week lows, with the three-year bond contract YTTc1 off 3 ticks at 98.020. The 10-year contract YTCc1 eased 1.5 ticks to 97.4000, while the 20-year contract YXXc1 was unchanged at 96.8700.
The spread between the 10-year and 3-year government bond dropped to 62 basis points, its lowest in nearly one year. (Editing by Simon Cameron-Moore)