SYDNEY(Reuters) - The Australian and New Zealand dollars struggled near two-week lows against the greenback on Wednesday but surged to four-month peaks against the euro as it took a severe beating from Italy's political turmoil.
The Australian dollar <EURAUD=R> held at 1.5383 per euro from Tuesday's 1.5307, a level not seen since late January.
The New Zealand dollar <EURNZD=R> was last at 1.6688 per euro, within striking distance of Tuesday's high of 1.6649.
The euro has suffered badly in recent days as investors dread the prospect of an election rerun in Italy returning a populist and eurosceptic government.
Sources close to some of Italy's main parties said there was now a chance that President Sergio Mattarella could dissolve parliament in coming days and send Italians back to the polls as early as July 29.
Analysts said a bigger issue was whether the election would clash with the European Central Bank's (ECB) agenda to wind down its massive quantitative easing programme.
"We had thought that the ECB would begin signalling its final intent towards QE in June, allowing plenty of time for markets to adjust," said Kerry Craig, strategist at JPMorgan Asset Management.
"However, it may now have to reinforce its commitment towards ensuring stability in the economy."
Elsewhere, the Aussie <AUD=D4> slipped 0.2 percent to $0.7492 against the U.S. dollar as the greenback strengthened broadly. [FRX/]
Government data out earlier in the day showed Australia's housing activity slowed in April as home building approvals fell by more than had been expected. Non-residential consents also slipped.
Australia's four-year-long home-building and buying spree has supported the A$1.8 trillion economy as it transitioned away from a once-in-a-generation mining investment splurge, but Wednesday's data suggested the property boom was running out of puff.
More signs of that could be seen in first quarter gross domestic product data due on June 6.
The Reserve Bank of New Zealand said in its twice-yearly financial stability report that the country's banks were better prepared to weather any unforeseen global shocks that could push up borrowing costs.
The kiwi dollar <NZD=D4> was last up 0.1 percent at $0.6910, above the day's low of $0.6883.
New Zealand government bonds prices <0#NZTSY=> rose, sending yields down about 2 basis points at the long end.
Australian government bond futures gained, with the three-year bond contract <YTTc1> up 3.5 ticks at 97.890. The 10-year contract <YTCc1> added 5.5 ticks to 97.365.
(Reporting by Swati Pandey; Editing by Eric Meijer)
