Australia, NZ dollars lose ground again, bonds extend bounce

By Wayne Cole

SYDNEY, June 22 (Reuters) - The Australian and New Zealand dollars were back on the defensive on Wednesday as global markets resumed fretting about recession risks, though bonds enjoyed a third day of gains.

The Aussie eased 0.3% to $0.6943 AUD=D3 , having topped out around $0.6995 for two sessions in a row. Charts show a narrowing wedge that could yield a large move when it breaks, with $0.6985 and $0.7000 the major trigger levels.

The kiwi dollar faded to $0.6297 NZD=D3 and looks at risk of moving a lot lower after cracking support at $0.6300.

The Aussie also dipped back to 94.70 yen AUDJPY= , running into profit taking from Japanese investors after it jumped 1.4% overnight to as high as 95.41.

Minutes of the Bank of Japan's last policy meeting showed members discussed the yen's recent rapid decline but decided to stick with super-easy policies.

The spread between Australian 10-year yields AU10YT=RR and Japanese yields has yawned out by a huge 70 basis points this month to 3.81%, levels last seen in 2011.

Local yields have eased a little after Reserve Bank of Australia (RBA) Governor Philip Lowe all but ruled out a hike of 75 basis points next month, saying the choice would be either 25 or 50 basis points.

Lowe also found it unlikely the 0.85% cash rate would rise as far as 4% by the end of the year, as the market had been predicting. That triggered a rally in rate futures 0#YIB: which now imply rates of 3.38% by Christmas. RBAWATCH

Three-year bond yields AU3YT=RR fell 8 basis points to 3.576% and away from a recent decade high of 3.767%.

"Calling a top in bond yields this year has been a perilous exercise," said Nomura economist Andrew Ticehurst.

"But with the RBA's communication, current market pricing for aggressive rate hikes, and the risk of recession in a number of countries, we think we are close to the peak in terms of short-end yields."

He sees the cash rate rising to 3.1% by the end of the year and staying there until the end of 2023, when rate cuts will be on the cards.
Editing by Muralikumar Anantharaman

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