By Cecile Lefort and Naomi Tajitsu
SYDNEY/WELLINGTON, Feb 4 (Reuters) - The Australian and New Zealand dollars shot up to fresh four-year peaks on the yen on Monday and held their ground against their U.S. counterpart, while bond prices fell to their lowest since May as major support levels finally gave way.
The Aussie flew to 96.78 yen and the kiwi popped up to 78.74 yen, their strongest levels since Aug. 2008. The Antipodeans have gained more than 17 percent each since November on the belief that reflation in Japan would require a much weaker yen.
The Aussie was last at 96.63 with open sky all the way to the psychological level of 100 last seen on Aug. 5 2008.
Against its U.S. counterpart, the Aussie rose to$1.0425, from $1.0404 early, having recovered from a low of $1.0362 hit on Friday. Immediate resistance was found at $1.0446 with $1.0405, the Jan 29 low, providing support.
The Aussie was underpinned by stronger Asian bourses and rising commodity prices after solid manufacturing data from the United States, Europe and China late last week.
The spot price of iron ore, Australia's top export earner, climbed to $153.20 a tonne to be up 76 percent from last year's lows.
'While the AUD is strong and will continue to weigh on domestic demand indicators... global factors suggest AUD should remain buoyant,' summarises Greg Gibbs, a strategist at Royal Bank of Scotland in Singapore.
This explained why the Australian dollar has been resilient to a run of surprisingly weak data including a fall of 4.4 percent in building approvals and a continued drop in job ads.
Other data out on Monday included a private gauge of Australian inflation which showed price pressures were restrained in the first month of the year, suggesting there was still scope to cut interest rates further.
The Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday but markets imply less than a one-in-five probability of an easing to a record low 2.75 percent.
A Reuters poll of 23 analysts found all but one expected an unchanged outcome this month, though many saw a chance of further easing as the year progressed.
Across the Tasman sea, the New Zealand dollar jumped to a 5-1/2-year high versus a currency basket, propelled by growing speculation of an interest rate rise in coming months.
'The New Zealand market has priced all rate cuts out of the equation and it's now talking about a Reserve Bank hike, while Australia still has cuts priced in. This is why we've seen the kiwi jump against the Aussie,' said Tim Kelleher, head of institutional FX sales at ASB.
On a trade-weighted basis, the kiwi soared to 76.46, its highest since July 2007, while rallying to $0.8493, its strongest since September 2011.
It outperformed the Aussie, which sank to a 2-1/2-year low around NZ$1.2275.
Following a warning from the Reserve Bank of New Zealand last week of house price risks, Kelleher said markets were pricing in a 10 percent chance of a 25 basis point rate rise from 2.5 percent by mid-year.
But the kiwi faces downward risks from employment data due this week. If data on Thursday shows that the jobless rate stayed high in Q4 following a surprising jump the previous quarter, some see the kiwi being knocked back towards $0.8350.
At the same time, traders noted offers hovering around $0.8500, while some pointed out that selling by Asian central banks has sapped upward momentum in the past months.
New Zealand government bonds fell, pushing yields 5.5 basis points higher across the curve.
Australian government bond futures plumbed nine-month lows, tracking a fall in U.S. Treasuries. The three-year contract dived to 97.03, its weakest since May, having pierced heavy support around 97.10.
The 10-year contract also sank to 96.415, a May 1 trough, having broken the 50 percent retracement of the March-May climb around 96.480. Next major support is at 96.272, the 61.8 percent retracement of the same move.
(Australia and New Zealand bureaux) Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX
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