Australia, NZ dollars take a breather after upside breaks

By Wayne Cole

SYDNEY, June 17 (Reuters) - The Australian and New Zealand dollars were just short of fresh highs on Tuesday as another bout of Middle East risk aversion swept markets, though both currencies found strong chart support to lean on.

Hopes for a quick ceasefire were dashed by news of another round of Israeli air strikes on Iran, spooking investors and hitting equities while boosting oil prices.

There was also speculation the United States was striking Iran itself, but these were quickly denied by the White House.

The Aussie is highly correlated to global risk plays and took a quick fall, before steadying at $0.6530 AUD=D3. That was off a seven-month top of $0.6552 reached overnight, while major support now lies around $0.6500 and $0.6463.

The kiwi dollar held at $0.6066 NZD=D3, having scored an eight-month peak at $0.6088 on Monday. It has solid support around $0.5996.

Both were aided by gains on the yen as the Bank of Japan confirmed market speculation by slowing its bond tapering plans, albeit only from March next year.

That should help relieve upward pressure on Japanese bond yields, at least at the margin, and helped lift the Aussie to 94.57 yen AUDJPY=. A break of 94.75 yen resistance would take it to the highest since mid-May.

In New Zealand, data showed annual growth in food prices picked up to a 17-month high of 4.4% in May, a blow to hopes for a further slowdown in overall inflation.

That led analysts at Westpac to revise up their forecast for second-quarter inflation to 0.6%, from 0.4%, which would lift that annual pace to 2.8% from 2.5%.

"Importantly, it looks increasingly likely that inflation will rise back to the top of the RBNZ's target band before year end," noted Satish Ranchhod, a senior economist at Westpac.

The Reserve Bank of New Zealand has already signalled it is near an end to its aggressive easing campaign and a higher reading on inflation would likely add to the case against further cuts.

Markets are pricing only a 16% chance of a cut in July, but that rises to 68% for August. 0#NZDIRPR