The Australian dollar received a leg up on Tuesday after an upbeat local business survey helped the currency break a key chart barrier, and investors were awaiting testimony by the new chief of the U.S. Federal Reserve.
The Aussie leapt to its highest in a month at $0.9016, from $0.8942 in early trade, and was last at $0.9007. A sustained break above major chart resistance at 90 cents would target the 2014 peak of $0.9087.
(Read more: Tuesday's trade willbe all about Janet Yellen)
It found support after a measure of Australian business conditions rose to its highest in nearly three years in January. The private survey also showed firms felt more confident about the outlook for orders and employment.
That would be welcome news for the Reserve Bank of Australia (RBA), which has been counting on a revival in non-mining sectors to offset the drag from a cooling resource boom. Just last week, the central bank all but shut the door on further rate cuts, citing improving economic conditions and a pick-up in inflation.
Local housing finance was down 1.9 percent in December, but that figure was largely offset by a rise of 3.4 percent in home prices in the last quarter of 2013.
"The Aussie will spend some time between 90 and 91 cents until the Fed testimony," said a trader at a European bank in Singapore.
(Read more: Is the worst overfor the Aussie dollar?)
Fed Chair Janet Yellen gives her first testimony before the House Financial Services Committee at 1500 GMT, and will more than likely face questions on the labor market and the future pace of tapering.
The Singapore-based trader said the Aussie was also dragged higher by a jump in the euro
Interbank futures fell, implying only a one-in-10 chance of a cut in Australian interest rates in coming months.
Financial markets have slightly increased the chances that the next rate move would be up, pricing in around 14 basis points of tightening on a 12-month horizon, from 2 basis points of cuts late January.
The was higher at $0.8300, its best in two weeks from $0.8263 in early trade. It has bounced 2-1/2 cents since hitting a five-month trough last week.
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A clear break above stiff resistance around $0.8300 would target $0.8328, the Jan 20 peak with support at the 100-day moving average of $0.8272.
The kiwi hovered around the middle of its $0.8050 - $0.8550 range seen since October, supported by expectations that New Zealand interest rates will begin rising next month, while the economy is seen outperforming in 2014.
The kiwi could push towards $0.8500 should the Reserve Bank of New Zealand start raising interest rates from a record low 2.5 percent in March. Still, it may struggle beyond that level, given that optimism about New Zealand's economy and its increasing rate advantage has largely been priced into the currency.
(Read more: Kiwi dollar too strong: New Zealand Finance Minister)
"We believe we have already seen the peak in the NZD/USD and the next big move in the currency will ultimately be down. But not yet," Bank of New Zealand analysts said in a note.
"For now, valuations present little downside risk to the currency. We are comfortable with our view the NZD/USD will trade above $0.8000 for most of H1."
Longer-dated New Zealand government bonds slipped, lifting the 2023 bond yield 2 basis points higher, while shorter-dated paper rose, pushing the yield on 2015 bonds 3.5 basis points lower.
Australian government bond futures edged down with the three-year contract 4 ticks lower at 96.950. The 10-year contract lost 3.5 ticks to 95.880.
The premium offered by Australian 10-year yields over Treasuries widened to a two-month peak of 151 basis points, having been as low as 123 late in December.