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NZ dollar touches fresh 7-year high vs. yen, gives up some gains after lower dairy prices

The New Zealand dollar touched a fresh seven-year high against the yen after Japanese prime minister Shinzo Abe called a snap election and said he would delay plans to hike sales tax to seek a mandate for economic reform after the country fell into recession.

The kiwi reached 93.22 yen, its highest since July 2007, and was trading at 92.75 yen at 8am in Wellington, from 92.52 yen at 5pm yesterday. The local currency gave up its gains against the US dollar, dropping about half a cent, after dairy product prices fell in the latest GlobalDairyTrade auction early this morning to the lowest level in more than five years, with the currency ending the overnight session little changed at 79.42 cents from 79.34 cents yesterday.

The Japanese currency weakened after prime minister Abe confirmed he would delay plans for an unpopular second hike in the consumption tax scheduled for October next year by 18 months and would dissolve the lower house of parliament on Nov. 21 to seek a mandate at the polls next month for his set of economic policies, known as Abenomics. The announcement came after data this week showed the Japanese economy has fallen into recession with two quarters of negative growth.

"Japan PM Abe confirmed he was to postpone the government's proposed sales-tax hike and was calling a snap election," Bank of New Zealand senior market strategist Kymberly Martin said in a note. "The Japanese yen suffered a bout of volatility on the announcement, although not unexpected by the market."

Today, the Bank of Japan is due to release its monetary policy statement while the Bank of England publishes the minutes to its last meeting. In the early hours of tomorrow morning, all eyes will be on the release of the US Federal Reserve minutes.

The New Zealand dollar touched 91.47 Australian cents, its highest in almost two months, after Reserve Bank of Australia governor Glenn Stevens said at a dinner in Melbourne last night that he sees a "pretty material risk" the currency will fall further. Stevens also said he saw rates on hold for an extended period, he was more concerned about downside than upside risk to growth and that a lower currency would help balance growth. The kiwi gave up its gains against the Aussie following the weaker dairy auction to be unchanged at 90.94 Australian cents this morning.

The average winning price in Fonterra Cooperative Group's latest auction overnight slid 3.1 percent to US$2,561, the lowest level since August 2009 and down from US$2,649 two weeks ago. Some 39,613 tonnes of product was sold, down from 45,499 tonnes of product two weeks ago.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 dairy season has decreased by 20 cents to $4.55 per kilogram milk solids following the GDT auction. This compares to Fonterra's current forecast for the season of $5.30/kgMS which is scheduled to be reviewed next month. Dairy products are New Zealand's largest export.

The local currency declined to 63.33 euro cents from 63.60 cents yesterday after a better than expected survey of German investor confidence. The ZEW Center for European Economic Research said investor confidence in Germany, Europe's biggest economy, climbed for the first time in 11 months, with the measure aiming to predict economic developments six months in advance rising to 11.5 in November from minus 3.6 in October.

The New Zealand dollar advanced to 50.80 British pence from 50.69 pence yesterday while the trade-weighted index weakened to 78.66 from 78.70.