WELLINGTON/SYDNEYL: The Australian and New Zealand dollars hit multi-year peaks on the yen and held close to multi-month highs on the US dollar on Monday as a change of government in Japan raised the prospect of more aggressive monetary stimulus.
The New Zealand dollar changed hands at 70.88 yen in late trade, having climbed to a four-year high of 71.36 yen where it met strong chart resistance.
Investor were focussed on whether the kiwi's upward momentum would extend beyond around 71.00 yen, roughly the currency's 50 percent retracement of its 2007-2009 sell off.
The Aussie dollar struck a 19-month high of 89.08 yen , before pulling back to 88.47, weighed by profit-taking in euro/yen.
The Aussie has gained 12 percent so far this year and a break of 90.04 yen, the May 2011 peak, would test 2008 levels. Immediate support was found around 88 yen.
The broad fall in the yen followed the return to power by Japan's conservative Liberal Democratic Party (LDP) on Sunday, giving ex-Prime Minister Shinzo Abe a chance to push his "unlimited" monetary easing.
The Bank of Japan meets later this week and is under intense pressure to expand its debt buying, so creating more yen.
Traders stressed there was scope for a yen rebound in the very near term.
"It's almost certain the Aussie will go to 90 yen, but in the interim, positions are far too stretched one way," said David Scutt, a trader at Arab Bank Australia.
"The market wouldn't be doing its job if it didn't test some of the weak longs established in recent days," he said, seeing 87.80 as a key level tested several times.
Against the US dollar, the Aussie took a breather at $1.0539, from $1.0557 in NY on Friday, having climbed last week to a three-month high of $1.0585.
The local currency is up one percent so far this month, underpinned by hefty gains in commodities. The price of iron ore, Australia's top export earner, has climbed 50 percent from its September lows to almost reach $130 a tonne.
Immediate support was initially found at $1.0510, with $1.0585 as immediate resistance ahead of key barriers at $1.0625, the September peak.
The kiwi edged lower to $0.8436, retreating from $0.8474 touched in early trade. It rose to a 15-month high of $0.8477 late last week.
It rallied versus the Aussie, which plumbed a two-month low of NZ$1.2446 to last fetch NZ$1.2484.
Some analysts, however, warned GDP data due on Thursday could post a downward risk for the currency.
"We think the NZ economy won't have grown at all in Q3 and that's a factor which could weigh on the kiwi this week," said Hamish Pepper, FX strategist at Barclays Capital in Singapore. The consensus forecast is for 0.4 percent quarterly growth.
Pepper said a downward surprise may knock the kiwi towards $0.8360, roughly around highs hit in September and October.
New Zealand government bonds inched up, nudging yields around 1.5 basis point lower across the curve.
Australian government bond futures firmed but remained near 4-month lows as the contracts rolled over from December to March. The three-year bond contract rose 0.045 points to 97.245, having touched 97.160, its lowest since August.
The 10-year contract added 0.035 points to 96.680 after slipping as far as 96.650.
Center>Copyright Reuters, 2012