By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, Feb 17 (Reuters) - The Australian dollar stayed near a three-month high on Friday but struggled to trade above crucial chart resistance of 77 U.S. cents after breaching that level three times this week.
The Australian dollar AUD=D4 held at $0.7701 after briefly popping up to $0.7732 on Thursday, a level not seen since Nov.10. It quickly fizzled to as low as $0.7684 in early dealing before inching back towards 77 U.S. cents.
The Aussie is set to end the week slightly higher, having traded in a sideways direction since the beginning of February.
Still, the currency is already up nearly 7 percent this year, led largely by expectations of faster inflation in the United States and globally.
The price of Australia's biggest earning export - iron ore - has also soared in recent months, boosting terms of trade and in turn the country's national income.
"The Aussie has been in real demand this week on the back of the reflation trade and perhaps is a little overextended," said Stephen Innes, senior trader at OANDA.
Innes expected further profit-taking and position squaring ahead of the weekend.
Elsewhere, the Aussie inched higher against its New Zealand cousin AUDNZD= to stay near a 3-1/2 month peak. It came off a 1-1/2 year top on the euro and held near a more than one-year top on the yen AUDJPY=R .
The New Zealand dollar NZD=D4 held its ground just above $0.7200 for a second day on Friday.
The currency was set for a modest weekly gain of 0.2 percent, after falling 1.5 percent the previous week.
Analysts expected the Kiwi to be helped by carry trades, where investors borrow cheap in yen or euro to buy higher-yielding assets.
A run of stronger economic news in the United States, coupled with improving data in China, has in turn supported commodity prices.
"The Kiwi is benefiting from the lift in U.S. economic sentiment," said ANZ senior rates strategist David Croy.
"While that may seem counter-intuitive at first, given that one would expect the USD to be the larger beneficiary, the USD continues to succumb to Trump fatigue, capital outflows and uncertainty as to whether the U.S. wants a strong or a weak dollar."
New Zealand government bonds 0#NZTSY= gained, sending yields three basis points lower at the short end of the curve.
Australian government bond futures eased, with the three-year bond contract YTTc1 down 1 tick at 97.93. The 10-year contract YTCc1 slipped 1.5 ticks to 97.155. (Editing by Simon Cameron-Moore)