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New Zealand, Australia dollars near 8-week peaks on data, better sentiment

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Japan's inflation rate fell to zero in January, government data showed on Friday, in another blow to Prime Minister Shinzo Abe's three-year attempt to put an end to a years-long battle with falling prices.

[SYDNEY The New Zealand and Australian dollars held near this year's highest levels on Friday following upbeat data and improving risk sentiment, putting them on track for hefty weekly gains.

The New Zealand dollar powered up 0.6 per cent and touched an eight-week peak of US$0.6775. It looked set to test the December high of US$0.6881. It has bounced 3 cents this month, and if sustained, it would be the largest increase since October.

It received a fillip after New Zealand posted a surprise monthly trade surplus.

A rise in dairy exports to China was particularly good news as a slowdown in Chinese demand has been a big factor in plunging prices for New Zealand's main export product.

The kiwi muscled up across the board, sending the already soggy pound to fresh 10-month lows at NZ$2.0617. Sterling has skidded nearly 5 per cent so far this week on mounting fears Britain might leave the European Union.

Against the Aussie, the pound also dropped to its lowest since May at A$1.9249 and is down around 10 cents so far this year.

Kiwi strength dragged the Australian dollar higher to US$0.7248, near an eight-week peak of US$0.7257. Commodity currencies had got a boost overnight after a rebound in oil prices spurred a risk rally.

The Aussie was on track for a weekly increase of 1.3 per cent, its third week of gains, having bounced from a seven-year trough of US US$0.6827. A break of key resistance around US$0.7250 would target $0.7328, then ISDUS$0.7386.

Support was found around US$0.7210.

The next major domestic event will be the monthly policy meeting of the Reserve Bank of Australia (RBA) on March 1.

Forty out of 41 economists polled by Reuters expect rates to stay at 2 per cent where they have been since May, though a majority are tipping a cut later in the year.

Interbank futures 0#YIB: imply nearly no chance of a move next week and a 92 per cent chance of an easing by July.

New Zealand government bonds gained, sending yields 2 basis points lower along most of the curve.

Australian government bond futures were a touch firmer, with the three-year bond contract up 1 tick to 98.270. The 10-year contract edged up 1 tick to 97.6100, while the 20-year contract was steady at 97.0750.