Aussie & NZ dollars firm ahead of China data, euro events

WELLINGTON/SYDNEY: The Australian and New Zealand dollars held firm on Thursday, underpinned by more gains on European currencies, while waiting for Chinese data and the outcome of a European Central Bank policy meeting and debt auctions in Spain and Italy.

* The euro continues to struggle at record lows against the Antipodeans -- touching troughs of NZ$1.5935 and A$1.2309 overnight.

* The Aussie also made gains on sterling, which slid to a five-month trough around A$1.4856 amid talk of European demand for Australian bonds.

* Against the US dollar the Aussie sits around $1.0310 little changed from where it was locally late on Wednesday. It ranged $1.0263 to $1.0330 overnight ebbing and flowing in line with the euro's fortunes.

* Aussie seen with initial support at $1.0263, the daily low, and below that $1.0229. The topside is seen capped at the two-month peak of $1.0387 set on Jan. 3.

* The New Zealand dollar at $0.7970 continues to outperform the Aussie, but its course also largely determined by euro's direction as it traded $0.7925 to $0.7963 overnight.

* Initial support for the kiwi was seen at $0.7920, ahead of $0.7888, with $0.7980 the first hurdle higher on the way to test the psychologically meaningful $0.8000.

* The euro falls to its lowest level in 16 months against the greenback as investors ready themselves for several key events, notably the European Central Bank's monetary policy meeting and Spain's sale of up to 5 billion euros of 2015 and 2016 paper. Italy offers 4.75 billion euros of five-year bonds on Friday.

* ECB policymakers are expected to keep rates on hold at 1 percent and strike a downbeat tone as they press governments to step up their efforts to tackle the debt crisis.

* A pledge by German Chancellor Angela Merkel that her country would pay more capital into the European Stability Mechanism fund, once the bailout fund is launched later this year, also prevented a stronger sell-off in the euro.

* Bearish mood around the euro not helped by a warning from Fitch ratings agency that the ECB should ramp up its buying of troubled euro-zone debt to support Italy and prevent a "cataclysmic" collapse of the euro. Renewed speculation also about an imminent cut to France's triple-A rating.

* Investors looking to Chinese inflation data due later on Thursday with expectations of the annual rate easing to 4 percent, from 4.2 percent.

* Slower inflation would give the Chinese more room to ease policy and support growth, a positive for trade partners like Australia.

* The Federal Reserve's Beige Book says US economy continued to expand modestly through the end of 2011 as holiday spending proved robust, but a weak job market was still preventing incomes from rising. See

* The Aussie remains on back foot against the stronger-performing kiwi at NZ$1.2940 after touching a 10-week low of NZ$1.2910.

* New Zealand government bonds a hint firmer along the curve as US Treasuries remained well supported on euro zone inspired safety demand.

* Australian bond futures gain with the 3-year contract indicated 0.02 points higher at 96.850 and the 10-year contract up 0.02 points at 96.180.