SYDNEY (Reuters) - The Australian dollar was heading for heavy weekly losses on Friday as rate-cut risk returned with a vengeance, while its New Zealand neighbour went the other way after a policy easing was ruled out for at least a couple of months.
The Aussie <AUD=D3> was pinned at $0.6796, having lost 0.9% for the week and left behind its recent three-month top of $0.6930. It was also off 1.7% for the week against the yen at 73.61 yen <AUDJPY=>, having hit a one-month low overnight.
The kiwi dollar <NZD=D3>, in contrast, was up almost 1% for the week at $0.6389 having found strong support around $0.6320 and with yields moving in its favour.
The Aussie had already been undermined by concerns over the Sino-U.S. trade talks and ongoing unrest in Hong Kong, so it was vulnerable when local jobs data this week showed a surprise 19,000 drop in October.
That was the biggest fall in three years and nudged unemployment back up to 5.3% and further away from the Reserve Bank of Australia's (RBA) ultimate goal of 4.5%.
Investors reacted by narrowing the odds on another quarter-point cut in interest rates to 0.5%, though a move in December is still only seen as a 28% chance <0#YIB:>.
The probability rises to 68% for February - the RBA does not hold a policy meeting in January - and to almost 100% by June.
"This should see A$ remain an underperformer near term, including against this week's star, the kiwi," Westpac FX strategist Sean Callow said.
For the week so far, the Aussie was down a hefty 1.8% on the kiwi at NZ$1.0639 <AUDNZD=>.
"The regional mood also seems likely to weigh," he added.
"US-China trade talks seem some way from resolution – remember the initial date for an agreement was supposed to be this weekend. And HK turmoil is raising risk premiums in Asia."
He saw the Aussie trending toward $0.6750, with any rallies likely to struggle at the 100-day moving average around $0.6840/45.
The outlook for the kiwi was a lot brighter given bears had been badly burned by the Reserve Bank of New Zealand's decision to skip a rate cut this week.
Callow looked for a rise to $0.6465 near term, and a much larger rally should that resistance break.
Markets imply only a one-in-three chance of an RBNZ cut in February, rising to 68% by June. <RBNZWATCH>
That had yields moving in the kiwi's favour, with the two-year bond <NZ2YT=RR> now paying 1.05% after surging 15 basis points on Thursday. A month ago it was at 0.72%.
Australian bonds went the other way, with three-year yields <AU3YT=RR> dropping 14 basis points over the week to stand at 0.73%. The three-year bond future <YTTc1> firmed another 1.5 ticks to 99.265 on Friday, while the 10-year contract <YTCc1> was up 15 ticks on the week at 98.8550.
(Editing by Himani Sarkar)
