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imageWELLINGTON/SYDNEY: The New Zealand dollar flew close to a near three-year peak on Wednesday, having picked up a tailwind after ratings agency Fitch upgraded its outlook on the country's AA rating to positive.

The kiwi was firm at $0.8790, not far from the overnight high of $0.8806.

It was only the second time since the currency was floated in 1985 that it has broken through the $0.8800 big figure.

The bullish move has revived talk the kiwi could make a bid for the post-float high of $0.8842 set back in August 2011. "While a test of the 2011-high at $0.8840 looks technically appealing, we remain cautious in the midst of the current shakedown in equity markets," said Bank of New Zealand strategist Raiko Shareef.

Near-term support for the kiwi is seen at $0.8768, with the overnight high the first line of resistance.

Fitch on Tuesday changed its outlook on New Zealand's AA-rating to positive from stable, citing progress in the country's fiscal consolidation.

The outlook change has raised hopes that Fitch could upgrade New Zealand's sovereign ratings in time.

The rating news came on top of expectations the Reserve Bank of New Zealand (RBNZ) will lift interest rates to 3.5 percent in July, the fourth hike this year and further boosting the kiwi's yield appeal.

Its Australian peer was also doing well, holding just above 94 US cents as it continued to recover from last week's fall to $0.9327.

The impact of an observation by Reserve Bank of Australia Governor Glenn Stevens that the currency is "overvalued by most measures" appeared to be fading as investors looked to Thursday's employment report for good news on the economy.

Both Antipodean currencies were also slightly firmer on the yen and euro.

The Aussie held its ground on the kiwi at NZ$1.0693, hovering above a three-month trough of NZ$1.0633 plumbed recently.

Australian government bonds took a bit of a breather with the 10-year yield drifting back up to 3.551 percent from a fresh one-year low of 3.522 percent.

Still, the outperformance of the long-end saw the yield curve flatten, reversing some of the recent steepening driven by expectations that interest rates will stay low for longer.

There were no major surprises in second-tier local data as well as China's inflation figures. Investors also shrugged off a speech by Reserve Bank of New Zealand's Assistant Governor, John McDermott, which repeated that inflation pressures were growing.

That leaves the focus on minutes of the Federal Reserve's latest meeting and speeches from European Central Bank officials due later in the day.

Chinese trade data on Thursday will also be closely watched.

"If tomorrow's figures offer another upside surprise relative to expectations, it could also contribute to some strength for the Aussie and kiwi," said David de Ferranti, analyst at FXCM in Sydney. New Zealand government bonds traded with a firmer tone, sending yields three basis points lower across the curve.

Australian bond futures were a touch firmer, with the three-year contract 1 tick higher at 97.330.

The 10-year contract put on 3 ticks to 96.450, having earlier set a 12-month high of 96.490.