By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, April 19 (Reuters) - The Australian and New Zealand dollars scaled 10-month peaks on Tuesday after a sudden reversal higher in oil prices boosted risk appetite, sending the yen and government bonds lower.
The Australian dollar AUD=D4 climbed to $0.7784, its highest since June, having bounced two cents since hitting a low earlier this month. It traded at $0.7774 with next major resistance found at $0.7849. A break would target the May 2015 peak of $0.8164.
The Aussie is up nearly 7 percent this year, largely due to ultra-loose policies in Japan and Europe and a cautious U.S. Federal Reserve which have boosted the appeal of higher-yielding currencies.
"It's game on for the Aussie. We may see the Aussie pushing through the $0.7800 level," said Stephen Innes, senior trader at FX and CFD firm OANDA Australia and Asia Pacific.
"This is looking probable and will certainly give the Reserve Bank of Australia (RBA) some cause for thought," he added.
Indeed, in minutes of its April 5 policy meeting, the RBA cautioned that a rising Aussie could tilt the economy off balance. also reiterated that low inflation would provide scope to ease further if needed.
Yet, interbank futures 0#YIB: only imply one-in-three chance of a cut by July given the recent run of domestic data has been largely upbeat. The RBA kept rates at a record low 2.0 percent for an 11th month in April.
The Aussie and kiwi dollars bounced against a soggy yen, while the euro and pound pulled close to multi-month lows.
The New Zealand dollar NZD=D4 sped up to a peak of $0.6995, benefiting from global "risk on" sentiment as oil prices stabilize, said Stuart Ive of OM Financial Ltd. It last traded at $0.6981, with resistance at $0.7040.
"It really all boils down to oil's lack of momentum on the downside," he said. "The world is suddenly a better place. Markets have shrugged off Doha and moved on."
Ive noted that the Kiwi could benefit further if a coming GlobalDairyTrade auction shows an ongoing improvement in global milk prices.
New Zealand government bonds 0#NZTSY= eased, sending yields 3.5 basis points higher at the short end and 2 basis points higher at the long end.
Australian government bond futures dipped, with the three-year bond contract YTTc1 off 6 ticks at 98.030. The 10-year contract YTCc1 fell 7.5 ticks to 7.4350, while the 20-year contract YXXc1 shed 6 ticks to 96.8800.
The spread between two-year U.S. Treasury bond yields US2YT=RR and those of its Australian counterpart AU2YT=RR narrowed to 127 basis points. It widened to 130 basis points late last week, a level not seen since July.
(Editing by Shri Navaratnam)