By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, Sept 14 (Reuters) - The Australian dollar was near 1-1/2 month lows on Wednesday as traders unwound positions in high-yielding, risky assets and rejigged portfolios on concerns global central banks were reaching the limits of policy stimulus.
The Australian dollar AUD=D4 held at $0.7467 after falling the most in 2-1/2 months on Tuesday and breaching major chart support at $0.7490.
Investors are anxious ahead of the Bank of Japan's policy meeting next week after reports it was studying options to steepen the bond yield curve or to take rates deeper into negative territory. Japanese bond yields have been rising sharply as a result, pushing up yields across the globe and forcing investors out of carry trades in currencies such as the Aussie.
The shift has seen investors close out long Aussie positions particularly against the euro EURAUD= and the yen AUDJPY= .
Yields on Australian 10-year paper AU10YT=RR have spiked 25 basis points in just three sessions to hit their highest in three months.
"The moves in developed market fixed-income, which are largely behind the volatility, have stemmed from Japan and the potential changes in monetary policy," said Chris Weston, chief markets strategist at IG Markets.
"Secondly, some of the biggest systematic funds have had to alter their portfolios. The rest of the market participants have had to simply react."
Global investors, wary of a bond selloff and over-valued equities in the developed world, have increased cash holdings in portfolios and upped emerging market equity positions to their highest in three and a half years. New Zealand dollar NZD=D4 did not fare any better, extending overnight losses on Wednesday as global risk aversion hit commodity-related currencies.
The kiwi edged down to $0.7244, trading near 2-week lows, after falling 1.3 percent overnight.
"While we think there is some fundamental support for the NZD, with a strong economy and higher dairy prices, the currency remains vulnerable to a further fall in risk appetite," BNZ Currency Strategist Jason Wong said in a research note.
The kiwi was not helped by data released on Wednesday morning that showed the current account deficit was slightly wider than expected. Zealand government bonds 0#NZTSY= fell in line with U.S. Treasuries, sending yields 8.5 basis points higher at the long end of the curve.
Long-dated Treasury yields rose to their highest levels in around three months on Tuesday amid heavy Treasury and corporate debt supply and speculation about the BOJ's intentions. US/
Australian government bond futures eased too, with the three-year bond contract YTTc1 off 2.5 ticks at 98.365. The 10-year contract YTCc1 was down 6.25 ticks to 97.85.