By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, Jan 21 (Reuters) - The Australian and New Zealand dollars reclaimed some ground on Thursday after a late rebound on Wall Street and oil markets brightened the bearish mood.
Yet, their outlook remained shaky given ongoing extreme volatility in global markets, falling commodity prices and uncertainty about China's growth.
The Australian dollar AUD=D4 edged up a third of a U.S. cent to $0.6940, having touched a seven-year low of $0.6828 on Wednesday when oil prices hit fresh lows.
Helping the rebound was a squeeze in bearish bets following a failed attempt to break major support around $0.6825, an area tested four times in the past week.
Against the safe-heaven yen, the Aussie rallied 1-1/2-yen to 81.52 AUDJPY=R , pulling back from 3-1/2-year lows touched in the last session.
ASB's Head of FX Institutional Sales for New Zealand Tim Kelleher said a massive turnaround in the Canadian dollar was also a key reversal and helped underpin both the Australian and New Zealand dollars.
"People are basically taking back shorts in the Kiwi and the Aussie and the sky is looking a bit bluer this morning," he said.
The Canadian dollar bounced from a fresh 12-year low CAD=D4 after the Bank of Canada wrong-footed traders by not cutting interest rates, despite a rout in crude oil prices. New Zealand dollar NZD=D4 rose 0.5 percent to $0.6460, after Wall Street pared losses toward the end of the U.S. session. Support was found around 64 cents, the 76.4 percent retracement of the Sept-Oct move. Resistance was seen at this week's peak of $0.6514.
The kiwi touched a four-month low of $0.6348 on Wednesday.
New Zealand government bonds 0#NZTSY= eased slightly, pushing yields up 1.5 basis points across the curve.
Australian government bond futures eased, with the three-year bond contract YTTc1 off 2 ticks at 98.110. The 10-year contract YTCc1 also fell 2 to 97.3250, but the 20-year contract YXXc1 added half a tick to 96.8400.