Australia, NZ dollars enjoy rally as US yields fall

SYDNEY, Feb 6 (Reuters) - The Australian and New Zealand dollars were enjoying a rare rally on Thursday as falling Treasury yields brought down their U.S. counterpart, while efforts from China to steady its currency offered some support.

The two currencies also lost ground to the Japanese yen after a top Bank of Japan official said the central bank must raise rates to levels of at least around 1%, more hawkish than the current market pricing, which only had rates going up to 0.8%. 0#JPYIRPR

Against the dollar, the Aussie was buoyant at $0.6283 AUD=D3, having risen 0.6% overnight in its fourth straight session of gains. It is well off the five-year low of $0.6088 hit on Monday, with bulls targeting the 2025 high of $0.6330.

It is off 0.5% to 95.42 yen AUDJPY=R, about the lowest since September last year.

The kiwi was also flat at $0.5687 NZD=D3, after gaining 0.7% overnight to as high as $0.5702. It faces resistance at $0.5723, which is the highest since December last year. It is down 0.4% on the yen NZDJPY=R.

Overnight, nerves about an inflation-stoking global trade war abated somewhat without new headlines from U.S. President Donald Trump. The U.S. services sector activity has been a little soft, which had investors back to price in two rate cuts from the Federal Reserve this year.

U.S. 10-year yields US10YT=RR slid 9 basis points to a new 2025 low of 4.40%, stocks rose and the U.S dollar pulled back.

On Thursday, China's central bank again guided its currency higher, setting the yuan fixing at 7.1691, the strongest since November. CNY/

Still, analysts at National Australia reckoned the Australian dollar is likely to be whipsawed on tariff headline until at least April or until there is more clarity on tariffs.

"The recovery (over next 6-12 months) is contingent on the USD resuming a downtrend aided by a resumption of Fed easing and strong China fiscal support," they said in a note.

Local bonds extended the global rally. Australian three-year government bond yields AU3YT=RR fell 3 bps to 3.701%, the lowest since October last year, while 10-year yields AU10YT=RR dropped 6 bps to 4.298%, the lowest since December.

Local data showed Australia's surplus on trade goods narrowed sharply in December, as a surge in imports of capital equipment outweighed gains in iron ore exports.