WELLINGTON/SYDNEY: The Australian and New Zealand dollars held near multi-month highs versus the yen on Monday, supported by broad weakness in the Japanese currency amid rising oil prices.
The Antipodean currencies could be poised for more gains versus the yen, and maybe the US dollar this week, if the European Central Bank's latest cash injection on Wednesday draws strong demand and eases liquidity constraints in the region.
The Aussie soared as far as 87.41 yen, its highest since early July, before trimming gains to 86.61 yen. The New Zealand dollar rallied to around 68.25 yen, its strongest in nearly seven months.
Against the US dollar, the Aussie was little changed at $1.0687, still short of a six-month high of $1.0845 hit earlier this month.
The New Zealand dollar was flat on the day at $0.8350. Many in the market see the possibility the kiwi could push above $0.8429, which would take it to its highest since nearly seven months.
Analysts anticipate more gains for the Aussie and the kiwi if European banks take up a bigger-than-expected amount of cash at the European Central Bank's second offering of cheap funding. The consensus is for banks to take up around 500 billion euros.
"A number significantly higher than that will trigger a risk rally, and a number below will cause a sell off," said Imre Speizer, senior market strategist at Westpac.
"(If we see a big take-up in the ECB tender), we could see the kiwi rally to above $0.8500, maybe up to $0.8575 eventually."
Many in the market expect an extension of the broad risk rally that followed a hefty take-up of ECB funding in December, which triggered a surge in the Aussie and the kiwi across the board.
At the time, demand for risky currencies soared on the view that weak banks would use funds borrowed from the ECB to bolster their balance sheets, while healthy banks would use them to buy government bonds of struggling euro zone countries.
The Antipodeans slipped versus the euro. The euro is also poised to gain on a big take-up of the ECB's funding operation, as such an outcome would quell some concerns about the health of the euro zone banking sector.
MORE GAINS VS YEN
The Aussie and the kiwi have rallied more than 10 percent so far this year against the yen, which has suffered in past weeks after the Bank of Japan announced more quantitative easing to boost the struggling economy.
There is also much talk of Japanese selling yen for dollars to buy oil as a hedge against further price increases.
Traders said a sustained break in the Aussie above Friday's high of 86.72 yen would target July's high of 87.75.
"While volatility is low, that will keep the upward pressure on the AUD/JPY," said Joseph Capurso, a strategist at Commonwealth Bank of Australia, adding that he would not be surprised to see the pair climb to 90 in a month's time.
While he highlighted the Aussie was hostage to the goings-on in Europe and risked selling if the euro zone debt crisis deteriorates, other analysts expected the Australian currency would be bolstered by technical support.
Markets took no notice of a leadership challenge of Australia's ruling Labor Party with Prime Minister Julia Gillard beating former foreign minister Kevin Rudd with 71 votes vs 31.
Political uncertainty tends not to roil markets in Australia as the main political parties are equally committed to budget surpluses and monetary policy is set by an independent central bank.
Some analysts expected the Aussie to be bolstered around $1.0650, a level which has provided support for much of the month. A break below opens the way to $1.0597. Resistance was seen at $1.0760 ahead of $1.0817.
The kiwi enjoyed technical support around $0.8327, its 21-day moving average, which has served as a buffer for the currency since the start of the year.
On the topside, traders saw resistance in the mid-$0.8400 region, as offers were suspected above $0.8450.
New Zealand government bonds inched up, nudging yields down as much as 2 basis points across the curve.
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