By Cecile Lefort
WELLINGTON, Sept 30 (Reuters) - The Australian and New Zealand dollars stood on a firmer footing on Wednesday underpinned by a bounce in stocks, but markets were cautious ahead of key economic data out of China.
The Australian dollar AUD=D4 edged up to $0.7013, from a trough of $0.6934 hit on Tuesday. It has shed 1.4 percent so far this month, largely due to expectations of an increase in U.S. interest rates before the end of the year.
Also undermining the Aussie are worries about slower economic growth in China, Australia's top export market, with investors awaiting a survey on Chinese manufacturing activity on Thursday.
"There's more trader chatter about the China PMI release than there is about the U.S. non-farm payrolls, indicating just how much influence China is having on traders' psyche," said Stephen Innes, senior trader at FX/CFD firm OANDA Australia and Asia Pacific. The U.S. jobs report is due on Friday.
He expects the Aussie to consolidate ahead of the survey on Chinese manufacturing activity.
With speculators heavily bearish on the Aussie, any upside surprise could trigger a short squeeze higher, while more disappointing news could see the local dollar fall past a fresh 6-1/2-year trough. The Aussie dropped to $0.6892 earlier this month, the lowest level since 2010.
The Australian dollar was also nursing losses against the yen with a 2.7 percent drop in September, its third consecutive month of losses. The euro was also set to show an increase of 2 percent in September, a sixth month of gains in a row over the Aussie.
The New Zealand dollar NZD=D4 rose to $0.6369, from $0.6341 early, firmly tucked in a narrow range of $0.6244 to $0.6458 seen this month. It dropped below 62 cents in August, a level not seen in six years.
Yet, unlike its Aussie cousin, it was set to show a gain of 0.5 percent in September, following four months of losses. It also outperformed the Aussie which has dropped around 2 percent so far this month.
New Zealand government bonds had a softer tone with yields 2 basis points higher along the curve.
Australian government bond futures retreated from multi-week highs, with the three-year bond contract off 2 ticks at 98.210. The 10-year contract was down 2.5 ticks to 97.3650. (Editing by Jacqueline Wong)