By Cecile Lefort and Charlotte Greenfield
SYDNEY/WELLINGTON, March 30 (Reuters) - The New Zealand dollar scaled a five-month peak on Wednesday, while its Australian peer hovered near recent highs after Federal Reserve chief Janet Yellen's cautious stance on future rate increases reinforced the attraction of bond yields in the Antipodes.
The New Zealand dollar NZD=D4 soared as far as $0.6884, having gained 2 percent on Tuesday when short positions were squeezed.
It was last at $0.6852, building on momentum from a three- cent bounce since mid-month and on track to post a 4 percent gain in March. Resistance is found at the October peak of $0.6897.
"The USD gapped lower on the speech by U.S. Fed Chair Yellen, early this morning. The NZD has been the strongest performer over the past 24-hours by some margin," BNZ senior market strategist Kymberly Martin, said in a research note.
Markets scaled back expectations for how fast and far U.S. interest rates might rise this year after Yellen emphasised the need to proceed "cautiously" on tightening policy. kiwi also strengthened against the Aussie which fell to NZ$1.1125, from NZ$1.1222 AUDNZD=R the previous day.
The Australian dollar AUD=D4 climbed to $0.7629, edging closer to the recent 8-1/2 month peak of $0.7681.
"The Aussie has been given clear air to retest the year high as the Fed backs out of hikes," said Evan Lucas, market strategist at IG.
The Aussie has surged 6.8 percent so far in March, which if sustained would mark the biggest monthly increase since 2011.
A break above $0.7681 would target the June peak of $0.7849.
Underpinning the Antipodean currencies are attractive bond yields with Australia's 2-year bonds paying 1.9 percent AU2YT=RR . New Zealand's counterparts offer 2.0 percent compared with the negative yields of Germany, France, Sweden and more recently Japan.
Tracking a jump in U.S. Treasuries, Australian government bond futures rose, with the three-year bond contract YTTc1 5 ticks higher at 98.080.
The 10-year contract YTCc1 gained 6.5 ticks to 97.4900, while the 20-year contract YXXc1 was steady at 96.9250.
The spread between 10-year and 3-year government bonds shrank to 56 basis points, the lowest in nearly one year.
New Zealand government bonds 0#NZTSY= rose, sending yields 3 basis points lower. (Editing by Shri Navaratnam)