By Wayne Cole
SYDNEY, Jan 6 (Reuters) - The Australian and New Zealand dollars looked vulnerable on Monday as mounting tensions in the Middle East favoured safe-haven assets, while Australia's economy suffered with the drag from natural disasters at home.
The Aussie edged down to $0.6940 AUD=D3 , having already shed 0.6% on Friday when United States forces killed a top Iranian commander.
The move was again led by flows into and out of the safe-haven yen, with the Aussie slipping to a three-week low of 74.71 AUDJPY= . It lost 1.1% on Friday as the yen jumped across the board.
The kiwi dollar was pinned at $0.6657 NZD=D3 and some way short of last week's five-month top of $0.6755. Chart support comes in around $0.6645.
With economies heavily reliant on free trade, the Antipodean currencies tend to be shorted as a hedge against global uncertainty.
In this case, the Aussie could draw some indirect support from steep gains in gold and oil prices, given the country is a major exporter of the metal and of liquefied natural gas, the price of which is tied to oil.
Investors were also happy to load up with Australia's top-rated bonds, driving 10-year yields AU10YT=RR down to 1.219% from a five-month high of 1.42% hit last week.
Three-year bond futures firmed 2 ticks to 99.205 YTTc1 , implying an yield of 0.795%.
Bill futures 0#YIB: added to their gains both due to the risks to growth globally and threats to the domestic economy from bushfires raging across New South Wales and Victoria.
The devastation is likely to hit consumer confidence hard at a time when households were already on a spending strike because of sluggish wage growth.
The worst of the fires also coincided with the height of the Christmas shopping and tourist seasons and could well drag on economic growth in both December and January.
Investors have reacted by narrowing the odds on another rate cut from the Reserve Bank of Australia (RBA). A move in February is now put at a 46% probability, compared to less than 20% a couple of weeks ago.
A quarter-point easing to 0.5% is almost fully priced in by June.
Data out this week include approvals to build new homes on Wednesday, the trade balance on Thursday and retail sales for November on Friday.
The latter are actually expected to show a solid increase for November, but largely because sale events such as Black Friday pulled spending forward from Christmas.
(Editing by Kim Coghill)