New Zealand dollar near two-month peak, Aussie follows

[SYDNEY] The Australian and New Zealand dollars pulled ahead on Wednesday as investors sought their relatively higher yields, with market liquidity further drained by a Tokyo holiday in already thin trading.

The New Zealand dollar was a clear outperformer at US$0.6809, hovering close to a two-month peak of US$0.6836 touched on Tuesday.

It has been on the rise ever since the Reserve Bank of New Zealand indicated it was unlikely to cut rates further from 2.5 per cent, easily the highest among developed nations.

While the Federal Reserve has embarked on a policy tightening path it is expected to be a very gradual affair. "Post the Fed's meeting, traders may be squaring up long USD positions, whilst others are reluctant to put on new positions into year-end," said BNZ Senior Market Strategist Kymberly Martin.

Broadly stable commodity prices and improving risk appetite have also helped the Kiwi. It got some support from a slightly narrower-than-expected November trade deficit, although the annual shortfall was the largest in six-and-a-half years.

The kiwi made headway against a battered pound which skidded 1 per cent on Tuesday to touch a six-month trough of NZ$2.1700 .

The Australian dollar crawled higher to US$0.7237, from a low of US$0.7182 on Tuesday. It has gained 0.7 per cent this week, due in part to firmer prices for iron ore. The mineral has risen for six consecutive sessions since touching multi-year lows.

Resistance was found near US$0.7242 with a stronger barrier at US$0.7280.

Against its Canadian counterpart, the Aussie held its own at US$1.0008. It broke key resistance on Tuesday when it powered up to C$1.0108, the highest level in over a year.

Tumbling oil prices have taken a heavy toll on Canada's Loonie, which is down around 6 per cent this year.

Australian government bond futures retreated from multi-week peaks, with the three-year bond contract down 1 tick at 97.940. The 10-year contract lost 3.5 ticks to 97.1650, while the 20-year contract shed 3 ticks to 96.6800.

New Zealand government bonds eased, sending yields 2.5 basis points higher across the curve.

AFP