By Cecile Lefort and Charlotte Greenfield
SYDNEY/WELLINGTON, May 12 (Reuters) - The Australian dollar regained some ground on Friday, while the New Zealand dollar sagged near an 11-month trough, with both currencies on track for weekly losses.
The Australian dollar AUD=D4 edged up to $0.7380, but was still within reach of a four-month trough of $0.7329 touched on Tuesday. It was on track for its seventh weekly loss in eight with a drop of 0.5 percent.
Much of the damage came after disappointing building approvals and retail sales numbers gave investors their rationale to cut Aussie long positions.
It was also undermined by retreating iron ore prices .IO62-CNO=MB which slipped to $60.38 a tonne on Thursday, not far above a six-month low, according to Metal Bulletin. ID:nL4N1IE1HN
The Aussie is sensitive to iron ore, Australia's top export earner. Support was found around $0.7340 with resistance near $0.7395.
"We remain sceptical of any aggressive upside from here unless the wheels fall off the U.S. dollar and commodities make a solid rebound," said Matt Simpson, a senior market analyst at Thinkmarkets.
Also capping a rise was diminishing yield appeal.
The spread between Australian AU2YT=RR and U.S. AU2YT=RR two-year bonds shrunk to 33 basis points, the lowest in 16 years.
Across the Tasman Sea, the New Zealand dollar NZD=D4 edged down to $0.6837, close to an 11-month low of $0.6829 on Thursday.
It skidded 1.3 percent in the last session after the Reserve Bank of New Zealand (RBNZ) wrong-footed kiwi bulls by keeping a neutral bias at its last policy review where it held interest rates steady at a record low 1.75 percent.
Markets had expected a more hawkish tone. kiwi was poised for a weekly loss of 1.2 percent. Analysts said the currency could trade with in fairly tight range for some time with the RBNZ's neutral stance acting as a "top side cap" on the kiwi.
"With the fiscal position strong, the data pulse generally good, NZ's commodity basket generally outperforming...it is hard to paint much of a downside case either, especially on a trade weighted index basis," ANZ senior economist Philip Borkin said in a research note.
New Zealand government bonds 0#NZTSY= gained, sending yields 4.5 basis points lower along the curve.
Australian government bond futures rose, with the three-year bond contract YTTc1 up 2 ticks at 98.150. The 10-year contract YTCc1 also gained 2 ticks to 97.3350, while the 20-year contract YXXc1 added 1.5 ticks to 96.7550.