SYDNEY/WELLINGTON: The New Zealand dollar flew at its highest level in over two years on Monday, while the Australian dollar was bolstered by data showing surprisingly strong manufacturing activity in top export market China. The kiwi built on Friday's offshore gains to rise as far as $0.7675, its highest since late July in 2008, before pulling back a touch in later trade to $0.7660. Short-covering in a thin market, underpinned by the prospect of further NZ central bank rate rises and the possibility of further U.S. pump priming by the Federal Reserve later this week were reasons cited for its strong performance "An additional programme of quantitative easing can be expected to provide continued support to the current elevated level of the NZ dollar-U.S. dollar cross rate," said First NZ Capital director of economics and strategy, Chris Green. The kiwi's next hurdle is the psychological barrier of $0.7700 and then around $0.7720, with support at around $0.7605. The Aussie was firm at $0.9880 and approaching resistance at $0.9900, which is close to the 76.4 percent retracement of its drop from $0.9973 to $0.9653. Support was at $0.9851, the 61.8 percent retracement of the move. The two commodity currencies drew support from data showing China's official purchasing managers' index for manufacturing rose well above expectations to a six-month high of 54.7 in October, underlining the strength of the world's second-biggest economy. China is the biggest buyer of Australian commodities and New Zealand's second-biggest export market. The China data helped to offset the widespread expectation that the Reserve Bank of Australia (RBA) will not raise interest rates at its policy meeting on Tuesday, with the chance of a 25 basis point rise to 4.75 percent put at a less than one-in-four chance. The market has pared bets for a hike after last week's tame consumer inflation report. A Reuters poll of 20 analysts showed 14 thought there would be no hike. The Aussie/kiwi pair bounced back from Friday's seven-week low of NZ$1.2785 offshore to settle around NZ$1.2890. In addition to the RBA's rate review, New Zealand has wages data on Tuesday, which is expected to show benign labour pressures, which will pose no threat to the Reserve Bank of NZ's on-hold strategy. NZ government debt was a shade firmer with yields, which move inversely to prices up to 1.5 basis points lower. Australian bond futures were soft, with three-year futures down 0.03 points to 95.06 and 10-years down 0.04 points at 94.73.

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