By Wayne Cole and Charlotte Greenfield
SYDNEY/WELLINGTON, Aug 1 (Reuters) - The Australian dollar took a brief knock on Tuesday after the country's central bank cautioned that its strength could harm the economy, though the impact was quickly offset by gains in commodity prices and weakness in the U.S. dollar.
Indeed, the Aussie AUD=D4 was still 0.4 percent higher on the day at $0.8030, having recovered completely from a dip to $0.8005. That left it within spitting distance of a two-year top of $0.8066 touched last week.
The Reserve Bank of Australia (RBA) left interest rates at 1.5 percent at its August policy meeting, as widely expected, but ratcheted up its disapproval against the higher currency.
The Aussie has climbed about 8 percent in the past two months, threatening economic growth and employment.
"An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast," said RBA Governor Philip Lowe.
Previously, the central bank had merely said that a rising dollar would complicate the economic outlook.
Yet the RBA has also played down any chance of a cut in interest rates to curb the dollar, in large part for fear of inflating a debt-driven bubble in the housing market.
Data out on Tuesday showed home prices surged in July as double-digit annual growth in Melbourne and Sydney belied efforts by regulators to tame the market. futures 0#TIB: now show almost no chance of a hike in rates for the remainder of this year, but also no prospect of an easing either.
The RBA is also fighting trends in global commodity prices, and notably iron ore - Australia's single biggest export earner. Dalian futures for the ore DCIOcv1 added 3.3 percent on Tuesday, having climbed almost 8 percent on Monday. in general have been on a roll as the U.S. dollar declined and improving economic news in China and Europe bolstered the outlook for global demand.
A Caixin/Markit survey out on Tuesday pointed to a pick up in China manufacturing, as output and new orders rose at the fastest pace since February on strong export sales. New Zealand dollar NZD=D4 has also been faring well on its U.S. cousin, hitting a two-year top last week. On Tuesday, the kiwi stood at $0.7511, having found solid support in the $0.7460/70 zone.
Investors next turn their attention to second-quarter employment data due out on Wednesday. Economists forecast jobs growth of around 0.7 percent and a slight dip in unemployment to 4.8 percent. ECONNZ
New Zealand government bonds 0#NZTSY= eased, sending yields 4 basis points higher.
Australian government bond futures eased, with the three-year bond contract YTTc1 off 3 ticks at 98.020. The 10-year contract YTCc1 fell 4 ticks to 97.2750. (Editing by Shri Navaratnam)