Australia, New Zealand dollars sit on gains, bond sale snapped up

By Wayne Cole

SYDNEY, Jan 21 (Reuters) - The Australian and New Zealand dollars were taking a breather on Wednesday after two sessions of gains, as markets anxiously awaited a speech by President Donald Trump in Davos that could calm, or inflame, tensions with Europe.

Concerns European funds might offload U.S. assets slugged stocks and bonds overnight and sent the greenback broadly lower. A selloff in Japanese bonds further spooked investors and helped lift the Aussie to an 18-month high on the yen.

The net result was to leave the Aussie firm at $0.6736 AUD=D3, having gained 0.3% overnight to reach as far as $0.6746. Resistance lies at a recent 15-month top of $0.6766, with major support around $0.6665.

The kiwi dollar stood at $0.5830 NZD=D3, after climbing 0.6% overnight and touching $0.5851. That was just a whisker from its recent three-month peak of $0.5853, and a break would open the way toward $0.6007.

Local bond markets were looking to stabilise from the Japanese rout, with yields on 10-year debt AU10YT=RR back at 4.765% having spiked as high as 4.806% at one stage.

Sentiment was aided by strong demand for the government's sale of A$15 billion ($10.10 billion) in new 2037 Treasury bonds, which drew bids worth almost A$67 billion.

Domestic data makes a return on Thursday with the Australian jobs report for December due.

Median forecasts are for a rebound of 30,000 in employment, following a surprise 21,300 drop in November. The jobless rate is seen edging up to 4.4%, from 4.3%, which would be dead in line with the Reserve Bank of Australia's own forecasts.

A much weaker outcome would lean against the chance of a near-term hike in interest rates, though everything depends on fourth-quarter inflation figures out next week.

Analysts assume a rise of 0.9% or more in the trimmed mean measure of core inflation would sharply narrow the odds for a hike at the RBA's next meeting on February 3.

Markets currently imply around a 30% probability of a quarter-point rise in the 3.6% cash rate. 0#AUDIRPR

"Our central case is that the RBA will begin to raise its cash rate in Q3, but there is a tangible risk of an earlier move," said Paul Bloxham, head of Australian economics at HSBC.

"We expect the Q4 trimmed mean to print at 0.8% q-o-q and 3.2% y-o-y, but a higher print risks a February hike."

($1 = 1.4859 Australian dollars)