[SYDNEY] The New Zealand dollar scaled a five-month peak on Wednesday, while its Australian peer hovered near recent highs after Federal Reserve chief Janet Yellen's cautious stance on future rate increases reinforced the attraction of bond yields in the Antipodes.
The New Zealand dollar soared as far as US$0.6884, having gained 2 per cent on Tuesday when short positions were squeezed.
It was last at US$0.6852, building on momentum from a three-cent bounce since mid-month and on track to post a 4 per cent gain in March. Resistance is found at the October peak of US$0.6897.
"The USD gapped lower on the speech by US Fed Chair Yellen, early this morning. The NZD has been the strongest performer over the past 24-hours by some margin," BNZ senior market strategist Kymberly Martin, said in a research note.
Markets scaled back expectations for how fast and far US interest rates might rise this year after Yellen emphasised the need to proceed "cautiously" on tightening policy.
The kiwi also strengthened against the Aussie which fell to NZ$1.1125, from NZ$1.1222 the previous day.
The Australian dollar climbed to US$0.7629, edging closer to the recent 8-1/2 month peak of US$0.7681.
"The Aussie has been given clear air to retest the year high as the Fed backs out of hikes," said Evan Lucas, market strategist at IG.
The Aussie has surged 6.8 per cent so far in March, which if sustained would mark the biggest monthly increase since 2011.
A break above US$0.7681 would target the June peak of US$0.7849.
Underpinning the Antipodean currencies are attractive bond yields with Australia's two-year bonds paying 1.9 per cent. New Zealand's counterparts offer 2 per cent compared with the negative yields of Germany, France, Sweden and more recently Japan.
Tracking a jump in US Treasuries, Australian government bond futures rose, with the three-year bond contract five ticks higher at 98.080.
The 10-year contract gained 6.5 ticks to 97.4900, while the 20-year contract was steady at 96.9250.
The spread between 10-year and three-year government bonds shrank to 56 basis points, the lowest in nearly one year.
New Zealand government bonds rose, sending yields three basis points lower.