By Cecile Lefort and Ian Chua
SYDNEY/WELLINGTON, Oct 23 (Reuters) - The Australian and New Zealand dollars scaled multi-month highs against a crestfallen euro on Friday after the European Central Bank (ECB) flagged further policy easing.
The common currency dropped to a four-month trough of NZ$1.6205, having tumbled 3.3 percent on Thursday - its biggest one-day fall since 2008. It was last at NZ$1.6243 and down 2.5 percent for the week. The next major line of defence was found at NZ$1.6028.
Against the Australian dollar, the euro fell to a two-month low of A$1.5330, on top of a 2 percent drop on Thursday. Key support was seen around A$1.5107, the 50 percent retracement of the April-August climb.
The euro's abrupt retreat came after ECB Chief Mario Draghi said the central bank was studying new stimulus measures that could be unveiled by December.
All that euro selling underpinned the Australian dollar against its U.S. counterpart. It edged up 0.4 percent to $0.7236, from a low of $0.7182 touched on Thursday. It was, however, still down 0.4 percent for the week.
Dealers said the Aussie was vulnerable on speculation the Reserve Bank of Australia (RBA) may resume easing in the next few months, partly to offset the impact of rising mortgage rates at home.
National Australia Bank raised its standard variable home loan rates following similar moves by Commonwealth Bank of Australia and Westpac Banking Corp.
Markets are pricing in around a one-in-four chance of a cut to 1.75 percent at the RBA's Nov. 3 meeting, rising to a 56 percent probability for December.
In contrast, expectations that the Reserve Bank of New Zealand will skip cutting rates again at its Oct. 29 policy review have in part supported the kiwi. The Aussie dropped to five-months low.
Against the greenback, the New Zealand dollar edged up to $0.6829 NZD=D4 , from $0.6790 early, following a 1.2 percent rally overnight. Yet, the kiwi was up a mere 0.3 percent on the week as demand for the currency cooled after recent attempts to break above 69 cents failed.
Traders saw support at $0.6750, with $0.6850 likely to provide some resistance in the short term.
New Zealand government bonds edged up, with yields 2 basis points lower.
Australian government bond futures had a firm tone, with the three-year bond contract up 2 ticks at 98.210. The 10-year contract added 1.5 ticks to 97.3600, while the 20-year contract was half a tick higher to 96.8000.