SYDNEY/WELLINGTON: The New Zealand dollar tore to a four-month high on Thursday following a better-than-expected economic growth reading at home, adding to already hefty gains after the Federal Reserve surprised markets by leaving its massive stimulus intact.
The kiwi set a high of $0.8413, up from $0.8235 at the same time on Wednesday.
The Australian dollar climbed a cent to as far as $0.9530 , its strongest in three months. It last fetched $0.9512, having gained 2.9 percent since Monday.
Both surged after the Fed shocked investors by deciding to continue its massive stimulus programme, citing strains in the US economy. Markets had widely expected the central bank to start reducing its $85 billion of monthly asset purchases.
The Fed's bold decision sent US bond yields into a tailspin, which in turn dragged Australian 10-year yields down 18 basis points to 3.98 percent.
Australia's three-year bond contract shot up 16 ticks to 97.050, off six-month lows touched on Wednesday. The 10-year contract added 18 ticks to 96.050.
New Zealand government bonds also rallied, sending yields as much as 10 basis points lower.
The kiwi got an extra kick after data showed that New Zealand's domestic sectors notched solid growth in the second quarter, despite the dampening effects of a severe drought.
The kiwi has gained about 7.4 percent so far this month, underpinned by improving risk appetite, strong growth prospects, and a central bank in a tightening mood.
"The move higher for the kiwi after the Fed will probably be sustained, we think, until the end of the year. It's a real move, it's a fundamental move," said Bank of New Zealand currency strategist Mike Jones.
The kiwi last traded at $0.8404, with support seen at around $0.8330 while sellers were seen at $0.8400/10.
Jones said the currency now looked set to challenge the 2013 high of $0.8676 seen in mid-April.
"The domestic economic fundamentals are positive as we saw in the GDP data, and I think we'll see the offshore investors jump on the US dollar to keep it heavy in the next few sessions."
The numbers showed construction, housing, and consumer activity all expanding at solid levels, which could see the central bank raising rates possibly early next year.
New Zealand's better outlook was also the key driver of kiwi outperformance against the neighbouring Aussie dollar, which fell to a one-month low of NZ$1.1314.
The outlook for the Aussie was a little more restrained since the Reserve Bank of Australia (RBA) still wants a lower currency to help support the economy, and could be driven to cut rates again if it keeps rising.
Still, the prospect of US rates staying low for longer and the improving fortunes of major export markets, particularly China, point to fundamental support for the Aussie.
"The Aussie had a big move and if the Chinese economy keeps producing good numbers, I see the Aussie getting back to parity before the end of the year, easily," said David Scutt, a trader at Arab Bank Australia.
Until then, he sees heavy selling interest between $0.9600 and $0.9650.
Charts showed a sustained break above $0.9511, the 38.2 percent retracement of the April-August fall to be bullish and would open the way to $0.9715, the 50 percent of the same move.
The Aussie was also hovering around multi-month peaks against the euro, yen and Canadian dollar.
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