By Cecile Lefort and Ian Chua
SYDNEY/WELLINGTON, Oct 21 (Reuters) - The New Zealand dollar was nursing losses on Wednesday after a disappointing global dairy auction saw prices for the country's single largest export earner fall 3.1 percent. The Australian dollar AUD=D4 drifted sideways in quiet trade.
The New Zealand dollar NZD=D4 hit a one-week low of $0.6737, having shed more than a full U.S. cent overnight. It last stood at $0.6753 with support seen at a low of $0.6619 touched last week.
The currency had already been struggling after failing twice to break above 69 U.S. cents.
The fall in international milk prices was not totally unexpected and followed four bumper auctions that saw prices rebound by more than 60 percent. urn:newsml:reuters.com:*:nL3N12K57S
"We interpret this fall as markets taking the opportunity to take stock of the recent surge in prices," economists at ASB wrote in a note to clients.
"Since the last auction there has been nothing to suggest that prices should fall. In fact, weak Fonterra production data if anything confirmed that NZ production is indeed in decline."
A clear winner from the auction was the Australian dollar which jumped a full cent against its kiwi counterpart to NZ$1.0773 AUDNZD=R , pulling away from four-month lows. Resistance was found at NZ$1.0766.
Against the U.S. dollar, the Aussie AUD=D4 was little changed at $0.7271, from a low of $0.7243 set on Tuesday.
It remained in consolidation mode after a recent rally - from $0.6934 to a two-month peak of $0.7382 - ran out of puff.
Recent underwhelming economic data out of China, the United States and Australia, have left investors reluctant to take large bets.
The focus now turns to the European Central Bank's policy meeting on Thursday with talk of further easing steps later this year to stimulate growth.
The euro stood at A$1.5626 EURAUD=R against the Aussie, having risen more than two cents since hitting a two-month low last week, supported by upbeat euro zone data. Likewise against the kiwi, it held at NZ$1.6803 EURNZD=R , from a trough of NZ$1.6544. ECONEZ
New Zealand government bonds 0#NZTSY= fell, with yields up to 5.5 ticks higher at the long end the curve.
Australian government bond futures eased, with the three-year bond contract YTTc1 off 4 ticks at 98.170. The 10-year contract YTCc1 shed 4 ticks to 97.3150, while the 20-year contract YXXc1 lost 5 ticks to 96.7550, leading to a bearish steepening of the curve. (Editing by Shri Navaratnam)