SYDNEY/WELLINGTON: The Australian and New Zealand dollars rose on Wednesday as calmer global markets and a rally in equities sparked demand for carry trades.
The Australian dollar edged up to $0.8865, having risen to a three-week peak of $0.8882 on Tuesday. It has gained nearly 1 percent in three sessions.
The Aussie was squeezed higher after some bears gave up on short positions following a global improvement in risk sentiment.
The Aussie was pulling close to the top of the $0.8640-$0.8900 range seen this month, following a steep 6.3 percent fall in September. A break would target $0.8935.
Underpinning the Antipodean currencies was a return of carry trades where the market borrows at low rates in yen to buy higher-yielding assets, such as the Kiwi and Aussie.
The Kiwi rose to 85.70 yen, from a low of 84.95 on Tuesday, having touched an 8-month trough of 83.32 earlier in October.
Likewise, the Aussie climbed to a one-month peak of 95.87 , showing a gain of more than 4 yen since hitting a six-month trough mid-October.
"The environment for carry trades is very good with volatility being low and the interest rate differential between Japan and Australia high," said Joseph Capurso, strategist at Commonwealth Bank of Australia.
He said there is a good chance the Aussie-yen could reach 100 before the end of the year.
In the short term, the Aussie faces strong resistance around 96 yen and a clear break would target 97.50.
The New Zealand dollar was holding gains at $0.7926 ahead of two key central bank statements due on Thursday.
A weak reading for US durable goods hit the greenback and propelled the kiwi to a one-week high of $0.7959.
However, markets are expected to mark time ahead of the Federal Reserve and Reserve Bank of New Zealand (RBNZ) monetary statements on Thursday morning.
The Fed is seen ending its asset purchases and attention will focus on what comments it makes on how long before it sees a possible start to rate rises.
"Removal of the Fed's 'considerable time' language would likely see a knee-jerk surge in the USD," said BNZ senior strategist Kimberly Martin in a market note.
"However, our central case is the Fed maintains the language until the December meeting."
The RBNZ is seen holding its cash rate unchanged at 3.5 percent and to signal that it expects to hold rates for some time because of subdued inflation pressures and uncertainties about the local and global outlooks.
With annual inflation at the bottom of the RBNZ's 1-3 percent target range, analysts now expect the central bank to stay on hold until the second half of next year before it resumes raising rates.
In the near term, support for the kiwi is seen at $0.7880 with the overnight high around $0.7960 capping the topside.
A survey showed business confidence picking up after last month's election, with the survey pointing to a solid business outlook and contained inflation pressures.
New Zealand government bonds were trading with a slight offered tone, sending yields a tick higher.
Australian government bond futures dropped, with the three-year bond contract down 6 ticks at 97.400. The 10-year contract fell 7.5 ticks to 96.670.
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