The Australian dollar held firm on Tuesday, keeping a grip on gains made overnight when resilience in US stocks wrong-footed short sellers, though it faced tough resistance just ahead. The local dollar spent the session around $0.9175, after recovering from a $0.9085 low offshore. Offers were seen at $0.9190 and the recent $0.9225 high, while support came in at $0.9085 and the 100-day moving average at $0.9065.
The Aussie was also up near 10-week highs in trade weighted terms but faces a tough chart barrier at 71.7 that has persisted since October. The improved mood seemed to owe much to late gains in US stocks, which confounded fears the passage of President Barack Obama's health care bill would send markets sliding.
Still, traders suspected the currency would be capped at $0.9225/45 while the market awaits the outcome of a euro zone summit meeting on Thursday and Friday which has the potential to rock the euro. Germany and some of its European partners clashed again over support for debt-laden Greece, which wants at least the promise of aid to help narrow its bond spreads and make refinancing easier.
The euro slid to a three-week low on the US dollar early Monday before paring its losses. It remained near decade lows on the Aussie on Tuesday at A$1.4770. A short-covering bounce also lifted the Aussie back to 82.79 yen, having dipped as low as 81.68 yen on Monday. There were no domestic data on Tuesday and nothing due on Wednesday either. The lack of news left bond futures little changed. Three-year futures eased 0.010 points to 94.670, while the 10-year contract added 0.020 points to 94.305.
However, a speech on the economy from Reserve Bank of Australia Assistant Governor Philip Lowe on Thursday would likely reiterate the central bank's upbeat outlook and remind investors that interest rates would rise further. The market is currently implying a 44 percent chance of a rate hike in April and is fully priced for a rise to 4.25 percent by June.
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