By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, March 17 (Reuters) - The Australian dollar scaled an eight-month peak and its New Zealand counterpart rose sharply on Thursday in the wake of solid domestic data and dovish comments from the U.S. Federal Reserve.
The New Zealand dollar NZD=D4 was a clear outperformer with a leap of one-and-a-half cents to $0.6746. Resistance was found at $0.6809, then $0.6820.
The kiwi even recouped losses from last week's surprise interest rate cut by the Reserve Bank of New Zealand (RBNZ).
The Kiwi and other commodity-linked currencies had already been trading higher after the Fed on Wednesday reduced its expectations for interest rate hikes in 2016 to two from four, sending the U.S. dollar lower.
Helping the kiwi was better-than-expected economic growth at home with gross domestic product rising 0.9 percent in the fourth quarter and 2.3 percent on the year. the solid headline masked a sharp fall in prices which underlined the danger of disinflation in New Zealand.
"The "surprisingly strong" growth" will not prevent the RBNZ from cutting interest rates from 2.25 percent to 2.00 percent in the coming months," said Paul Dales, chief Australia and New Zealand economist for Capital Economics.
The Australian dollar AUD=D4 rose to $0.7594, from $0.7464 late on Wednesday. Heavy selling of the U.S. dollar in Asia briefly sent it to $0.7620, the highest since July last year.
A sustained break of a major barrier at 76 cents could see a test of the June 2015 peak of $0.7849.
A surprise drop in Australian unemployment to 5.8 percent helped the Aussie as it seemed to lessen the risk of cut in rates for the next month or so. futures 0#YIB: still imply around a 50-50 chance of a rate cut by August, in part because policy steps by other major central banks were pushing the local dollar higher in a way that could prove a brake on exports.
A rising Aussie, up 6.2 percent so far this month, is unlikely to be welcome by the Reserve Bank of Australia.
"Any further strength in the currency may result in policymakers "jawboning" - talking down the Aussie dollar," said Savanth Sebastian, an economist at CommSec who sees a steady rate outlook in coming months.
Australian government bond futures rose in the wake of the Fed's dovish turn, with the three-year bond contract YTTc1 up 6 ticks to 98.060.
The 10-year contract YTCc1 added 5.5 ticks to 97.4200, while the 20-year contract YXXc1 gained 6 ticks to 96.8800.
New Zealand government bonds 0#NZTSY= gained, sending yields between 3 and 5 basis points lower across the curve. (Editing by Simon Cameron-Moore)