By Wayne Cole
SYDNEY, Nov 6 (Reuters) - The Australian and New Zealand dollars eased on Wednesday as their U.S. counterpart got a lift from rising Treasury yields, while the kiwi took an extra knock from a mixed set of jobs data.
The Aussie AUD=D3 was holding at $0.6892, having slipped off a $0.6928 top overnight. The repeated failure to break resistance around $0.6930, now risks support at $0.6877.
The kiwi NZD=D3 faded to $0.6374 and away from a three-month peak of $0.6466 hit at the start of the week. Major support lies around $0.6335.
The pullback was mainly a function of a firmer U.S. dollar as optimism on Sino-U.S. trade talks and a surprisingly strong survey of the U.S. service sector pushed up Treasury yields.
As a result, Australian 10-year bond yields AU10YT=RR are now 60 basis points below those on Treasuries, compared with 75 basis points this time last month.
Yet the Aussie also benefited from signs of progress in the trade talks, making gains on the euro and touching a 14-week high on the safe-haven Japanese yen AUDJPY= .
The Aussie is often used as a proxy for China risk and has shown a close correlation with the yuan in recent weeks, falling and rising in lock-step.
It thus found support when China's central bank lifted its official guidance rate for the yuan to a near three-month high on Wednesday. latest news has added further fuel to the notion that a U.S.-China Phase 1 trade deal looks imminent," said Rodrigo Catril, a senior FX strategist at NAB.
"If we were to get a full rollback of existing tariffs as part of a Phase 1 deal, then the positive impact on the global growth outlook and pro-growth risk sensitive currencies such as the AUD and NZD could be significant."
For now, the kiwi was restrained a little by data showing unemployment was a little higher than forecast last quarter at 4.2%, while jobs growth undershot. the jobs numbers were much as expected by the Reserve Bank of New Zealand (RBNZ) and wage growth did pick up to a decade high.
That left investors split on whether the RBNZ will cut rates at its policy meeting on Nov. 13, with the market implying around a 65% probability of an easing to 0.75%. RBNZWATCH
"We still believe the path of least regret for the RBNZ is to deliver a 25 basis point cut next week, but we've lost a little conviction in the call as financial markets have improved markedly," said Kiwibank economist Jarrod Kerr.
"If they don't cut, wholesale interest rates will pop higher and the kiwi will spike, possibly through $0.6500."
In the bond market, Australian futures eased in line with Treasuries and the three-year contract YTTc1 slipped 2 ticks to 99.125. The 10-year contract YTCc1 fell 4.5 ticks to 98.7500. (Editing by Jacqueline Wong)