By Swati Pandey and Rebecca Howard
SYDNEY/WELLINGTON, Oct 6 (Reuters) - The Australian dollar edged lower on Thursday as its U.S. counterpart strengthened ahead of this week's jobs data, which could bolster expectations of a Federal Reserve rate hike this year.
The Australian dollar AUD=D4 slipped 0.1 percent to $0.7610. It looked set to end the week down after two straight weekly gains as investor attention veers to the Fed, the European Central Bank and the Bank of Japan.
Australia did report a smaller-than-expected trade deficit for August, but that was overshadowed by the looming U.S. nonfarm payrolls report on Friday which is expected to show 175,000 jobs were added last month. will be on top of upbeat services sector activity in the world's biggest economy that rebounded to an 11-month high in September. market is currently pricing in a 20 percent chance of a Fed rate hike by November although a strong employment report could see the odds tightening.
"With the domestic front quiet over the next week, the AUD will largely take the lead from offshore events, and potentially the rates market," ANZ said in a note.
The Aussie is up nearly 5 percent this year, thanks largely to carry trades where investors borrow in safe haven currencies such as the euro and the yen to invest in high-yielding and riskier assets.
However, as global interest rates inch higher and quantitative easings wind down the Aussie risks reversing its gains. Reports that the European Central Bank was considering trimming the scale of its asset purchases, denied by the bank, sent bond yields soaring this week. global long end sell-off in September suggests the AUD will underperform in a rising rate environment as the carry trade is unwound," ANZ added.
The Aussie is still faring well against other currencies. It is on track for its fourth straight day of gains against its New Zealand cousin AUDNZD=R , up 0.2 percent.
Against the yen, it held near a one-month peak hit on Wednesday, while it stood near its highest in more than three years against the pound GBPAUD= .
The New Zealand dollar NZD=D4 weakened 0.2 percent to 0.7164, sticking to a tight range.
The Kiwi dollar's technical chart indicators suggest sell signals across the board, said OM Financial Ltd Private Client Advisor Stuart Ive.
However, Ive does not expect the kiwi to "fall like a stone."
Instead, he advises selling on rallies as the uptrend against the greenback has been broken.
New Zealand government bonds 0#NZTSY= eased, sending yields 2 basis point higher at the short end.
Australian government bond futures fell too, with the three-year bond contract YTTc1 down 2 ticks at 98.42. The 10-year contract YTCc1 edged 2.5 ticks lower to 97.885. (Editing by Kim Coghill)