By Stella Qiu
SYDNEY, Dec 8 (Reuters) - The Australian and New Zealand dollars failed on Thursday to sustain overnight rallies as the prospect of higher rates driving the global economy into recession unnerved investors who had been cheered by China's relaxation of COVID-19 rules.
The Aussie fell 0.3% to $0.6703, after gaining 0.6% overnight to as high as $0.6740. It faces resistance around $0.6850, while having support at $0.6670.
The kiwi also eased 0.2% at $0.6343, giving back some of the 0.6% gain in the previous session. Support lies at around $0.6310.
They were buoyed by news that China is further loosening its COVID policy, allowing infected people with mild symptoms to quarantine at home and dropping testing requirements for people to travel domestically.
However, recession fears crept higher, with recent upbeat U.S. employment, services and factory data adding to investor uncertainty over the Federal Reserve's policy outlook.
"In the absence of any economic data releases or FOMC speakers, markets continue to mull the prospects of the FOMC causing a recession in the U.S. economy," said Carol Kong, a strategist at Commonwealth Bank of Australia.
"Uncertainty about the inflation outlook suggests the risk remains high that the FOMC will keep policy at a restrictive level for longer and in turn drag the economy into a deeper downturn."
Three-year yields in Australia were steady at 3.043%, remaining below the cash rate of 3.1% for the third straight session.
The Aussie also hit a one-year low on the kiwi at NZ$1.0529 overnight, before recovering some ground to stabilise around $1.0572, as traders bet on the divergence in local rates. (Editing by Robert Birsel)