SYDNEY/WELLINGTON, Feb 11 (Reuters) - The Australian and New Zealand dollars rose to their highest in nearly a week on Thursday as the greenback stayed on the defensive after the head of the Federal Reserve gave investors no reason to expect U.S. rates will be lifted any time soon.
The Aussie climbed as far as $0.7153 and was last 0.4 percent higher at $0.7126 AUD=D4 . It has bounced off this week's trough of $0.6973 and was holding up surprisingly well despite the current risk averse environment.
"It looks like there is a degree of reluctance to price in the worst case scenario about China and even the global economy," said Sean Callow, a senior currency strategist at Westpac.
"A rebound in iron ore and gold prices - key exports for Australia - has helped deter aggressive shorts in the Aussie."
The main focus overnight was Fed Chair Janet Yellen's congressional testimony in which she stuck to the message that the Fed was on a 'gradual' policy tightening path. Yet, she also warned about increasing risks facing the U.S. economy.
All in all, her comments left Fed funds futures little changed 0#FF: . Financial markets have all but priced out the risk of a Fed hike this year. central bank chief Glenn Stevens will face a grilling from local lawmakers on Friday at his twice yearly parliamentary testimony.
The New Zealand dollar NZD=D4 rose 0.5 percent to $0.6717, having been as high as $0.6736. It has also pulled well away from this week's low of $0.6564.
Further aiding the kiwi, a survey showed manufacturing activity picked up last month. The Bank of New Zealand-Business NZ's Performance of Manufacturing Index rose to 57.9, its highest since October 2014. Antipodean currencies gained on the euro but were softer against the safe-haven yen.
Safety-seeking helped underpin New Zealand government bonds 0#NZTSY= , pushing yields some 2 basis points lower across the curve.
Australian government bond futures were firmer with the three-year bond contract YTTc1 up 2 ticks at 98.290. The 10-year contract YTCc1 edged up 3 ticks to 97.6300.