Australia dlr bounces as euro suffers setback

By Wayne Cole and Naomi Tajitsu

SYDNEY/WELLINGTON, Jan 3 (Reuters) - The Australian dollar was trying to end the week on a steadier footing after a sudden reversal in the euro gave it a much-needed lift from important chart levels.

The Aussie AUD=D4 was holding at $0.8897 on Friday, having climbed from a low $0.8843 on Thursday. That was the fourth time in the past three weeks that it has bounced from support in the $8820/40 area, making that a key bulwark for the currency.

The rally owed much to a retreat in the euro which has been on a roll over the last couple of months gaining around 10 percent on the Australian currency.

Dealers said the market had got very long of euros, particularly against the yen, and was overdue a shakeout of positions. As a result the euro dropped more than a cent to A$1.5347 EURAUD=R and away from its recent highs at $1.5597.

Not helping the Aussie was another disappointing piece of economic data from China where a measure of activity in the services sector dipped to 54.6 for December, from 56.0 the month before. News Search ID:nB9N0JK02E .

The New Zealand dollar NZD=D4 was steady at $0.8193, after rallying from a low of $0.8140 on Thursday.

The kiwi has retreated from a high of $0.8243 hit early in the week after its inability to push above trendline resistance resulted in a wave of selling.

This triggered a broad pullback, knocking the kiwi from a near six-year high around 86.75 yen hit on earlier this week.

On Friday, it traded around 85.70 yen NZDJPY=R . It slipped against the Aussie AUDNZD=R , which traded around NZ$1.0875, having clawed back from NZ$1.0810 on Thursday.

The kiwi has had a sluggish start to 2014 after ending 2013 nearly 5 percent higher versus a currency basket, bolstered by a buoyant economy. Expectations that New Zealand interest rates will start rising this year also boosted the currency.

While this view has kept the kiwi near a post-float high on a trade-weighted basis, it ended 2013 0.8 percent lower against the dollar, which has gained some steam as the Federal Reserve has announced it will cut back on its monetary stimulus.

Technical support was seen at $0.8159, its 200-day moving average. Ongoing selling momentum could push it below that level and open the door towards $0.8084, a low hit in late November.

New Zealand government bonds 0#NZTSY= slipped, pushing yields 3 basis points higher across the curve.

Australian bond futures were near their lows for the week in the wake of generally upbeat data on global manufacturing. The three-year bond contract YTTc1 eased 1 tick to 96.930, while the 10-year contract also lost a tick to 95.705.

(Editing by Eric Meijer)

((Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

Keywords: MARKETS AUSTRALIA/FOREX