SYDNEY: The Aussie and kiwi dollars were trading slightly higher on Tuesday, ahead of the Reserve Bank of Australia's monetary policy decision that is expected to see its July bond tapering decision reversed due to ongoing pandemic lockdowns.

The Australian dollar was up 0.03% at $0.7366 ahead of the RBA's announcement, after falling as low as $0.7330 in intraday trading the previous day. Its next test of support is at the 8-month low of $0.7289 it reached on July 21, and has resistance at $0.7421.

"The A$ remains in a 3 month downtrend," Westpac Banking Group analysts said in a note. However, record profits and dividend payment announcements were supportive of the commodity-sensitive currency, despite lower iron ore prices in recent weeks.

Australia, NZ dollars near recent lows as risk appetite wanes, bonds gain

"The increasing spread of cases in New South Wales/extended lockdowns, risks of RBA action today, rising US/China tension and a likely further wave of strength in the US dollar should cap gains in the Australian dollar," the analysts said.

The New Zealand dollar was likewise a little higher at $0.69935, as traders expect to see strong labour market data on Wednesday that could pressure the Reserve Bank of New Zealand to raise rates this month.

Given the strength of the New Zealand economy, the kiwi should be poised to challenge resistance at around $0.70 in the coming days, strategists said.

Meanwhile, New Zealand bonds fell at the short end of the curve, pushing yields 2-to-4 basis points higher, while 10-year yields were little changed at 0.1.55%.

Australian bonds were higher, pushing the yield on the 10-year government benchmark three basis point lower at 1.150%. The three-year bond yield fell slightly to 0.24%.