Aussie lifted by broad US$ weakness; bonds mixed

* Aussie firm near 7-month peaks on US$ weakness

* Little reaction to Australia's national budget

SYDNEY, May 13 - The Australian dollar climbed towards a seven-month high on Wednesday, helped by a weaker U.S. dollar which fell out of favour as risk appetite improved and on talk the United States risked a credit rating downgrade.

The Aussie <AUD=D4> was firm at $0.7683 at 0708 GMT, up from $0.7599 seen here late Tuesday. It also held its ground against the yen at 74.16 yen <AUDJPY=>, from Tuesday's 73.91.

The U.S. dollar hit a four-month low against a basket of currencies after an opinion story in the Financial Times touched on the risk of the United States losing its triple A status, traders said. [ID:nSP488687] "It does feel as if forex traders are shifting from being slaves to the S&P ticker towards hating the U.S. dollar again," said Robert Rennie, a strategist at Westpac.

"You can almost hear them chanting 'We hate dollars...We hate dollars,'" he said.

Philip Burke, the chief currency dealer at JPMorgan, said investors were betting the Aussie could rise further, with traders putting stop losses at $0.7580.

Those who are shorting the Aussie, or betting that it would fall, have stop losses at around $0.7720, Burke said.

There was demand from hedge funds on dips, he added. "They are saying the recovery is on and we can't afford to miss out anymore."

On the charts, the next key Fibonacci level is around $0.7929, which will be a 50 percent retracement of the Aussie's plunge from July to October. The seven-month peak of $0.7714 was hit on May 11.

Traders said there was little reaction in the markets to Australia's national budget released on Tuesday, with projected economic weakness and higher borrowing well within expectations.

For coverage of the budget, see [ID:nSYD171203].

The Labor government forecast an underlying cash deficit of A$57.6 billion in the year to end June, 2010, well within expectations, as was borrowing of A$60 billion for 2009/10.

Total bonds on issue were seen rising to A$300 billion by 2013, which was higher than some had expected but still modest compared to many other developed nations.

Aussie bonds futures were mixed. The three-year bond contract <YTTc1> eased 0.03 points to 96.16, while the 10-year contract <YTCc1> added 0.005 points to 95.075. ---------------(Snapshot at 4:15 p.m./0615 GMT)----------------- FUTURES CASH YIELD 90-DAY BILL 90-DAY BILL<YBAc1> (JUN) 96.88 ( 0.00) <AU3MBB=RR> 3.11 (3.12) 3-YR BOND <YTTc1> (JUN) 96.16 (-0.03) <AU3YT=RR> 3.88 (3.82) 10-YR BOND <YTCc1> (JUN) 95.075(+0.005) <AU10YT=RR> 5.12 (5.09) AUD/USD <AUD=> 0.7683 (0.7599) US 10-YR <US10YT=RR> 3.21 (3.18) ---------------------------------------------------------------- AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD USD +259 (+255) +191 (+191) *FUTURES +1.085 (+1.12) CAD +239 (+237) +198 (+199) *AUD 2-YR/10-YR SPREAD NZD -9 (-18) -46 ( -51) *CASH +160 (+163) ---------------------------------------------------------------- For Reuters data on current Australian bond pricing, double-click on <YIELDBROKER>.