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Aussie & NZ dlrs bounce on euro, bonds in demand

Wednesday, 10 Oct 2012 | 2:05 AM ET

* Aussie at one-week highs vs euro

* Australian govt sells A$3.25 bln bonds

* Australian job data out on Thursday a key risk

By Gyles Beckford and Cecile Lefort

WELLINGTON/SYDNEY, Oct 10 (Reuters) - The Australian and New Zealand dollars bounced on the euro on Wednesday and held off lows against the U.S. dollar, with a whopping sale of Australian long-dated bonds helping attract demand.

The Antipodeans regained some ground against a soggy euro with the Aussie rising to a one-week high of A$1.2563 , moving away from four-month lows hit last week.

The euro was undermined by large liquidations of long euro positions as uncertainties about Spain and Greece resurfaced.

The common currency has slipped 1.6 percent against the Aussie since Friday to last fetch A$1.2566. Charts indicate more downside after the euro failed to hold above A$1.2800.

Key support was seen at A$1.2512, the 61.8 percent of the Sept-Oct bounce with A$1.2625 providing initial resistance.

The euro dipped to NZ$1.5717 versus the kiwi, showing a 1 percent loss in three sessions to last trade at NZ$1.5729.

The euro decline dragged the Antipodeans higher across the board, even against a broadly stronger U.S. dollar.

The Aussie edged up to $1.0220 , from $1.0203 in early trade, moving away from a three-month trough of $1.0149 hit on Monday.

A 12 percent surge so far this week in spot iron ore prices

and an oversubscribed sale of long-dated government bonds by the Australian government helped underpin the local currency.

Having tripped light stops above $1.0220, next resistance is seen at $1.0250 with support at $1.0175.

Investors were now focused on Australia's jobs report due out on Thursday.

The Reserve Bank of Australia (RBA) warned on Tuesday the labour market could be softer than suggested by the low jobless rate. A disappointing report would add to the case of further easing following a 25 basis points-cut to 3.25 percent last week.

Interbank futures pricing implies a 60 percent chance of another quarter of a point cut next month.

"The jobs report will be the catalyst for the Aussie's next move," said a trader at a European bank in Singapore, expecting a break on either side of $1.0150 and $1.0270.

An Australian consumer sentiment private survey showed a modest improvement for October with people happier about their finances and on buying a new home.

NEW ZEALAND DOLLAR

The New Zealand dollar paused around $0.8166, after touching a one-month low of $0.8145.

Selling of the kiwi against the Aussie was seen as an added weight on the kiwi on top of the more generalised strength for the U.S. dollar.

"We've seen quite a strong rebound in the iron ore price, that's part of it, with some profit taking on the cross which has been quite heavily one way for the past month or six weeks," said ASB Bank's head of institutional FX sales, Tim Kelleher.

Iron ore is Australia biggest export earner.

"Kiwi looks like it's slightly on the defensive...I don't think it's going anywhere fast, but it's pointing to a weaker night," Kelleher said.

Short term support for the kiwi was seen at around $0.8134, the 50 percent retracement of the September rally, and below that back towards $0.8100, while $0.8220 was seen capping the topside.

Markets were unmoved by data showing the New Zealand government posted a budget deficit of NZ$9.2 billion for the 2011/12 fiscal year. That was half the previous year's deficit but still short of expectations, showing how tough it will be to get back into surplus in three years. ID:nL3E8L81TH]

"The direction of change in the fiscal accounts - shrinking deficits - will be important to the rating agencies and more important than the precise timing of any return to surplus," said BNZ economist Doug Steel.

New Zealand government bonds gave up most of the opening gains to close flat, although there was a slight bid tone at the long end of the curve.

Australian government bond futures edged lower with three-year contract 0.03 points lower at 97.620 and the 10-year contract 0.02 points off at 97.015.

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

Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX