By Cecile Lefort and Charlotte Greenfield
SYDNEY/WELLINGTON, May 31 (Reuters) - The New Zealand dollar climbed to a three-month peak on Wednesday, while its Australian counterpart drifted lower on falling commodity prices, having paid little attention to better-than-expected manufacturing data from China.
The New Zealand dollar NZD=D4 soared to $0.7118, its highest since early March, from $0.7036 the previous day. It was poised to show a gain of 3 percent in May, breaking three months of decline.
The Reserve Bank of New Zealand's six-monthly report on the country's financial stability had almost no impact on the currency, with the governor saying risks at home and abroad had lessened but that the bank was still wary. survey showing strong business confidence also provided support and analysts said the outlook for the Kiwi was good. positive momentum, with potential to move into a higher $0.7100-$0.7200 trading ranged during the days ahead," said Imre Speizer, currency strategist at Westpac Bank.
The love wasn't shared across the Tasman Sea with the Australian dollar AUD=D4 down at $0.7450, from $0.7466 early, away from last week's peak of $0.7517. It was on track for a fall of 0.4 percent in May, the third month of losses.
It briefly popped to $0.7476 after China's manufacturing sector grew faster than expected in May, allaying concerns of slowing economic momentum as Beijing cracks down on financial risks. ID:nL4N1IT02Y
China is a key export market for Australia, and another fall in the price of iron ore, Australia's top export earner, stole the limelight.
The most-active iron ore contract on the Dalian Commodity Exchange DCIOcv1 dropped 3.2 percent, to be down around 30 percent since mid-March.
The Aussie, however, outperformed a soggy pound which dropped to A$1.7132 GBPAUD=R , the lowest in a month.
Against the kiwi, it eased as far as NZ$1.8007 GBPNZD=R , the lowest since mid-April. The pound has tumbled 4 percent so far in May and if sustained, it would be the largest monthly loss in one year against the New Zealand dollar.
Australian government bond futures hovered near six-month highs, with the three-year bond contract YTTc1 up 1 tick at 98.320. The 10-year contract YTCc1 edged up half a tick to 97.5850, while the 20-year contract YXXc1 was steady at 97.0200.
The spread between Australian AU2YT=RR and U.S. US2YT=RR 2-year government bonds shrunk to 27 basis points, the smallest since 2001.
New Zealand government bonds 0#NZTSY= gained, sending yields 2 basis points lower.