SYDNEY/WELLINGTON: The Australian and New Zealand dollars held near four-year peaks against the floundering yen and two-week highs versus the dollar on Thursday, as a last-minute US fiscal deal and strong iron ore and dairy prices underpinned growth-linked currencies.
The Aussie consolidated at $1.0486, from $1.0496 early and sat within reach of an overnight peak of $1.0524, the highest since Dec 19.
It gained 1 percent on Wednesday after US lawmakers averted huge tax increases and spending cuts with an agreement that fuelled a huge rally for risk assets.
"It's hard to see where the weakening in the Aussie dollar will come from," said Steve Goldman, a portfolio manager at Kapstream Capital, seeing the currency ranging between $1.00 and $1.10 in 2013.
"There will be some risks heading into February with the US debt ceiling and it may come down to the wire again but we believe they will increase the debt ceiling," he said.
Goldman added that global growth looked okay with a slow, but improving US economy and fairly strong growth in Asia.
Hourly support was seen at $1.0480, with immediate resistance in the $1.0516/35 area.
The Aussie was also backed by sustained high iron ore prices, which hit an eight-month peak of $144.90 a tonne.
Prices are now up 67 percent from the lows in September. Iron ore is Australia's single largest export earner.
The kiwi edged marginally lower to $0.8317 from $0.8336 early, having gone as high as $0.8394 on Wednesday before succumbing to some profit taking.
"We saw quite sharp moves in the kiwi following the 'cliff' announcement. They appeared to be exaggerated by the lack of liquidity," said ASB Bank senior economist Jane Turner.
"Markets are correcting out some of the overreaction we saw as liquidity returns." New Zealand markets were closed on Wednesday for a public holiday.
Still, the downside could be limited, with dairy prices jumping 2 percent at the latest auction. In addition, data showed Boxing Day electronic transactions gained 13 percent on year-ago levels, pointing to improving consumer demand.
Technically, the kiwi was seen targeting $0.8400 having broken through key levels, with support around the $0.8263/85 area.
The Antipodean currencies edged lower against the yen due to mild profit-taking, but were still close to four-year peaks hit on Wednesday. The Aussie last traded at 91.45 yen, having gone as far as 91.77 yen, a level last seen in September 2008.
The Australian dollar gained three yen in one week and with daily moving averages pointing north, the currency could be testing 93.20 yen, the September 2008 peak.
The safe-haven yen has come under broad pressure in recent weeks on expectations the Japanese central bank will have to take even bolder measures to jump start its ailing economy.
The kiwi shed 0.3 percent on the day to 72.46, from an overnight high of 73.14. The New Zealand currency rose a whopping 20 percent last year.
The Antipodean currencies were underpinned by a sharp fall in risk aversion, measured by the VIX index, which encouraged carry trades. Investors borrow low-yielding currencies such as yen and dollar to buy Aussie and kiwi dollars.
Both Aussie and kiwi dollars notched up big gains on the euro, which suffered a sudden reversal after weeks of hefty gains. The euro slid around 1 percent overnight to last change hands at A$1.2557, from a three-month peak of A$1.2807 hit last week.
Against the kiwi, the common currency fetched NZ$1.5832 , having shed four cents in one week.
NZ government bonds track Treasuries lower, with local yields up by as much as 6 bps.
Australian government bonds were quiet, with the three-year contract steady at 97.200. The 10-year contract was a touch firmer at 96.630, but still near four-month lows touched overnight.