By Gyles Beckford and Cecile Lefort
SYDNEY/WELLINGTON, Dec 14 (Reuters) - The Australian and New Zealand dollars extended their already massive gains versus an embattled yen on Friday on growing expectations the Bank of Japan will step up its money-printing, putting the currencies on track to end the week sharply higher.
The Aussie and kiwi dollars hovered close to multi-month highs against their U.S. counterpart, underpinned by a healthy HSBC PMI reading of China's December manufacturing activity.
The Aussie fetched $1.0536, from $1.0527 early, having climbed a three-month high of $1.0585 this week. It was set to post a 0.5 percent rise for the week.
Support was seen at $1.0487, a 10-DMA with major resistance at $1.0625, the high on Sept 14 and March 20.
The local currency was underpinned after the Russian central bank said it has increased the share of Australian dollars in its forex reserves to 1.5 percent.
The New Zealand dollar was firm at $0.8434, from $0.8432 early, on track to post a hefty 1.3 percent increase this week.
It touched a nine-month high of $0.8461 on Thursday and raised the prospect it might make an assault on its all time high of $0.8840 set in July 2011.
'New Zealand dollar momentum is certainly positive, but a quick glance at the 'fundamentals' suggests a push above $0.8800 could be a bridge too far,' said Bank of New Zealand currency strategist Mike Jones.
Short term support for the kiwi is seen around the 5-day moving average at $0.8410 and below that $0.8380. The overnight high of $0.8461 is seen as the first hurdle before the more formidable year-to-date peak of $0.8471.
The Antipodean currencies scored large gains on the yen as pressure grows the Bank of Japan will take bold action at its policy meeting next week to stimulate a struggling economy.
A surge in Chinese stocks helped risk sentiment and dragged the yen further down across the board.
The kiwi was a major winner, jumping to a fresh four-year peak of 70.81 yen and on target to show an eye- popping gain of 3 percent for the week.
The Aussie dollar followed suit and climbed a nine-month peak of 88.40 yen, on track to post a weekly increase of more than 2 percent.
It looked set to test the year peak of 88.62 ahead of a 20-month high of 90 yen.
'People have come to the view that the BOJ will keep on easing while the RBA (Reserve Bank of Australia) is maybe nearly done,' said Matthew Johnson, an interest rate strategist at UBS.
Investors are pricing in around a 50-50 chance of a cut in the cash rate to 2.75 percent in February, when the Reserve Bank of Australia (RBA) holds its next policy meeting. Markets are factoring further easing to 2.50 percent or lower next year.
UBS's Johnson said the Aussie move could also be attributed to ongoing portfolio flows from Japan.
'Japanese are good savers, they send a lot of money overseas and Australia is a popular place,' he said.
New Zealand sees a flurry of data next week including third-quarter current account and gross domestic product numbers, and the mid-year update of the government's fiscal position.
Expectations are for a slowing in growth, and a levelling out in the current account deficit.
New Zealand government bonds closed mostly flat, with a hint of a bid tone at the long end of the yield curve.
Australian government bond futures skidded to three-month lows on positioning. The three-year bond contract fell 0.06 points to 97.200, having pierced the November low of 97.240 and triggering stop losses.
The 10-year contract slipped 0.055 points to 96.720, having broken lows from October and November at 96.760. Next major support is found at 96.564, the August trough.
Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX
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