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Aussie dlr feels the heat, bonds on fire

Tuesday, 2 Oct 2012 | 10:40 PM ET

WELLINGTON/SYDNEY, Oct 3 (Reuters) - The Australian dollar extended losses against the U.S. dollar on Wednesday and hovered near multi-week lows elsewhere as markets priced in more cuts in domestic interest rates, boosting bonds.

* The Australian dollar skids to $1.0222, its lowest since Sept 6, from $1.0263 early, having knocked out options at $1.0250. A break below $1.0200, an area of stop loss selling, opens the way to $1.0165, the Sept low.

* Aussie has lost a cent and a half since the Reserve Bank of Australia (RBA) cut rates by 25 bps to 3.25 pct on Tuesday, breaching major support in the $1.0240/50 area.

* Aussie took another hit on Wednesday after Australia's trade deficit widened to A$2 bln in August, far exceeding forecasts of a A$700 mln shortfall.

* The New Zealand dollar gets caught in the Aussie downdraft. Last at around $0.8240, from $0.8270 early. It hit a high of $0.8337 overnight, underpinned by kiwi buying against the Aussie.

* Initial support found at $0.8235, the low on Sept 27, with resistance at $0.8300.

* The RBA cited a darker global background, falling export prices and a high currency as the main factors behind the easing. It also left the door ajar for more cuts.

* Interbank futures show a two-in-three chance of another cut in November. Overnight indexed swaps indicate the cash rate at around 2.65 percent in 12 months.

* Risk sentiment weighed due to a drop in China's service PMI and uncertainty over the timing of Spain's request for an international bailout.

* Euro jumps to A$1.2623 , its highest since mid June, having gained a hefty 1.2 pct in 24 hours as RBA cut forced heavy short-covering.

* Euro underpinned by expectations European Central Bank will keep rates steady against more easing seen in Australia. Resistance seen at A$1.2740.

* Aussie also knocked lower vs yen , holding near one-month lows at 79.84 yen.

* The Aussie trims losses against the kiwi to around NZ$1.2408 after sliding to NZ$1.2361, lowest in one year. The cross rate has lost more than 3 pct since a seven-month high in late July.

* Kiwi unmoved by results from latest auction by dairy giant Fonterra, which posts its first overall price fall in two months, down 0.9 percent after rising close to 20 percent since mid-July.

* New Zealand government bonds gained, sending yields 3.5 basis points lower across the curve.

* Australian government bond futures rise with the long-end jumping to two-month highs. The three-year contract adds 0.02 points to 97.720, while the 10-year contract climbs to 97.170, having touched 97.175, its highest since late July.

((Australia/New Zealand bureaux)(+61 2 9373 1800/+64 4 802 7980))

Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX