SYDNEY: The Australian and New Zealand dollars rose in choppy trade on Tuesday, proving resilient to a sharp sell off in global equities which sent investors to safe-haven assets such as government debt.
The Australian dollar edged up to $0.8787, from $0.8760 in early trade and adding to Monday's 1 percent gains.
However, it spent most of the session in the red after a spike in volatility encouraged investors to unwind popular carry trades, where the market borrows at low rates in yen to buy higher yielding assets, such as the Aussie.
It dipped as far as $0.8736 following comments from a senior official at the Reserve Bank of Australia (RBA) reiterating that despite the recent fall in the Australian dollar it remained "higher than most conventional estimates of fundamentals would indicate."
The Aussie has tumbled seven cents since early September to reach four-year lows on Oct. 3 on the view that the US Federal Reserve is likely to raise interest rates well before most major central banks.
Also undermining sentiment was a private survey showing a measure of Australian business conditions fell in September to its lowest in four months.
Still, the Aussie managed to bounce back, finding support from a tentative stabilisation in commodity prices.
"Iron ore has formed a base and the risk is for further gains," said Sean Callow, a senior currency strategist at Westpac.
Iron ore Australia's top export earner, rose to $83.10 a tonne, from recent five-year lows.
"We see the Aussie more likely to test 89 cents in the near-term than to break 86 cents," said Callow.
Resistance was found around $0.8810-20.
The New Zealand dollar shared a similar path to its Aussie cousin, edging 0.2 percent higher to $0.7902. It, too, managed to hold Monday's 1 percent gains.
The Antipodeans bounced off multi-month lows against the yen. The kiwi was at 84.33 yen, having touched 83.55 the previous day, its lowest since February. The Aussie stood at 93.64, nearly one yen higher from a seven-month trough touched Monday.
A slide in the US dollar has offered a respite to the kiwi, which plumbed a 14-month low of $0.7708 late last month after a pause in New Zealand interest rate rises and falling global dairy prices.
As market participants anticipate a slowdown in the pace of kiwi selling versus the US dollar, some see room to sell it against the yen, given that its losses against the Japanese currency have been relatively limited in past months.
"We prefer selling NZD/JPY over NZD/USD at the moment since NZD/USD has weakened significantly already, highlighting the better risk/reward of being short NZD against JPY," Morgan Stanley analysts said in a note.
They added that they expected the yen to benefit from safe-haven demand if equity markets continue to sell off on concerns about the global economic outlook.
The kiwi may face selling pressure if global dairy prices continue to fall at a fortnightly auction later in the day.
A near 50 percent tumble in the price for milk products, a key export earner for New Zealand, so far this year threatens to curb the pace of economic growth in the coming months.
New Zealand government bonds rose, pushing yields 2 basis points lower across the curve as risk aversion boosted the debt market, pushing the 10-year yield down to around 4.0 percent, its lowest since mid-2013.
Ten-year Australian government cash yields edged up to 3.32 percent, having plumbed their lowest in 16 months at 3.26 percent on Monday.
Australian government bond futures retreated from highs, with the three-year bond contract down 1 tick at 97.420. The 10-year contract eased 1.5 tick to 96.660.
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