SYDNEY/WELLINGTON: The Australian dollar strengthened on Tuesday as traders covered short positions ahead of key inflation data and a US Federal Reserve two-day policy meeting beginning later in the session.

The Aussie dollar rose 0.72 percent in afternoon trading to $0.7521, breaking above a key resistance level of 75 cents.

Analysts said inflation data on Wednesday was most likely to decide the near-term fate of the Australian dollar. Economists forecast a dip to a fresh trough of 1.4 percent, likely cementing the case for another rate cut as early as next week.

The market is pricing in around a 60 percent chance of a rate cut in August.

The Aussie also gained versus the British pound after dovish comments from Bank of England policymaker Martin Weale. In a newspaper interview, Weale said he saw the economic outlook differently after much weaker-than-expected British purchasing managers’ data, a week after saying he needed firmer evidence before backing an interest rate cut.

But the Aussie dollar fell 0.62 percent against the yen on doubts the Bank of Japan would take bold action at its two-day meeting that ends on Friday.

Across the Tasman Sea, the New Zealand dollar rose 0.7 percent on Tuesday to $0.7044, steadying after two straight weekly falls.

While the Kiwi tested support at 0.6960 overnight “it soon found its feet and has consolidated,” said BNZ Senior Market Strategist Kymberly Martin.

New Zealand government bonds eased slightly, with yields up half a basis point across the curve.

Australian bond futures were marking time into the inflation data. The three-year bond contract was down 2 ticks at 98.56, while the 10-year contract held at 98.0750.—Reuters