By Wayne Cole
SYDNEY, June 29 (Reuters) - The Australian and New Zealand dollars were on the defensive on Friday after a rough week in which worries about China's economy and asset markets drove both currencies to multi-month lows.
The Aussie dollar AUD=D3 was down 1.2 percent for the week at $0.7340 and within a whisker of a one-year trough at $0.7323.
It still has some support around the $0.7329 low from May last year, but bearish charts flag the risk of a return to the December 2016 nadir of $0.7160.
The kiwi was pinned at $0.6743 NZD=D3 , having shed 2.4 percent in a week that saw it delve depths not visited since June 2016 at $0.6739.
Dealers said the market was now very short of the currency, which could provide a brief break from selling, but a bearish chart backdrop meant the next likely target was a $0.6676 trough from May 2016.
Speculators have been selling the currencies as a liquid proxy for Chinese assets which have been taking a beating amid mounting Sino-U.S. trade tensions.
The yuan CNH=D3 has fallen steadily to six-month lows while Shanghai blue chips .CSI300 shed 5 percent just this week to reach a 13-month low.
"We think the yuan and Chinese equities deserve close attention at the moment, further declines will undoubtedly increase the risk of contagion," said Rodrigo Catril, a senior FX strategist at NAB.
At a policy review this week, the Reserve Bank of New Zealand highlighted the risk poised to the export-driven economy from a possible trade war. RBNZ took a dovish tone as it emphasised rates would remain at record lows for some time to come, a clear contrast to the tightening bias of the U.S. Federal Reserve.
Likewise, the Reserve Bank of Australia (RBA) is considered certain to keep its cash rate at an all-time low of 1.5 percent at a policy meeting on July 3.
The bank has made it abundantly clear it is no hurry to tighten given wage growth and inflation remain uncomfortably low, leaving the market to push a hike ever further into the future.
Interbank rate futures 0#YIB: imply a cash rate of 1.69 percent for November next year, implying around a 76 percent chance of a 25 basis-point increase by then.
The global risks to growth have driven up demand for triple-A rated Australian bonds, pushing 10-year yields AU10YT=RR down to 2.62 percent from highs around 2.84 percent in mid-May.
On Friday, the three-year bond future YTTc1 was up 1.5 ticks at 97.935, while the 10-year contract YTCc1 held steady at 97.3750.
New Zealand government bond yields were a tick lower at the short end of the curve 0#NZTSY= .