By Wayne Cole and Charlotte Greenfield
SYDNEY/WELLINGTON, Sept 14 (Reuters) - The Australian dollar was heading for its best week in five months on Friday as the safe-haven flight from emerging markets calmed a little and a run of solid domestic data caught bears in a short squeeze.
The Aussie dollar AUD=D3 was hovering at $0.7198, having gained 1.2 percent for the week so far in its biggest gain since April. That was a marked recovery from a 2-1/2 year trough of $0.7085 hit early this week, but it still faced stiff chart resistance in the $0.7230/36 zone.
It got a lift overnight when Turkey's central bank hiked interest rates by a surprisingly aggressive 625 basis points to 24 percent, boosting the badly-beaten lira. move eased concerns about emerging markets (EM) generally and prompted some short covering in the Aussie, which has been sold as a hedge against such risks.
The reversal was sharpest against the safe-haven yen, with the Aussie currently up 2 percent for the week at 80.52 AUDJPY= .
"All up, AUD/JPY – of late the whipping boy for rising emerging market and trade angst in the G10 currency world - is back above 80 and now in positive month-to-date territory," noted Ray Attrill, NAB's head of FX strategy.
Also helping was Thursday's strong August jobs report which underlined the resilience of the Australian economy and nudged bond yields higher. on 10-year government paper AU10YT=RR were near one-month highs at 2.61 percent, up from a low of 2.485 percent hit at the start of September.
Sean Callow, a senior currency analyst at Westpac, noted some of Australia's major commodity exports had been faring well even in the face of the Sino-U.S. trade dispute.
Prices for liquefied natural gas had tracked oil higher while thermal coal was at a six-year peak.
"Australia's commodity prices have been trending higher even as AUD/USD has been falling, so the Aussie is well below fair value," said Callow.
"There's scope for a push to $0.7250/$0.7300 over next week if risk appetite holds up."
The New Zealand dollar NZD=D4 followed the Aussie higher to $0.6576, and away from a low of $0.6501 hit earlier in the week. The currency held a 0.6 percent gain for the week so far, after two consecutive weekly losses.
"There's potential for the recent bounce to extend to $0.6600," said Imre Speizer, strategist at Westpac Bank, in a research note.
A survey released on Friday also showed the pace of manufacturing activity in New Zealand lifted in August, ending a three-month run of declines and calming fears that growth might slow. Zealand government bonds 0#NZTSY= eased, sending yields 1.3 basis points higher at the long end of the curve.
Australian government bond futures were mixed, with the three-year bond contract YTTc1 up 1 tick at 97.955. The 10-year contract YTCc1 eased 2.5 ticks to 97.3925.