By Cecile Lefort
WELLINGTON, Oct 7 (Reuters) - The New Zealand dollar rose to seven-week highs on Wednesday boosted by a solid rise in dairy prices, while yen softness helped the Australian dollar stay near three-week peaks.
The New Zealand dollar NZD=D4 popped to $0.6556, its highest since late August, after global dairy prices leapt 10 percent at an auction held by giant cooperative Fonterra.
Dairy is New Zealand's top export earner and a sharp drop in milk prices has weighed on the local economy.
"We view rebounding dairy prices as challenging the need for further immediate interest rate cuts given that low dairy prices were a huge reason behind the Reserve Bank of New Zealand cutting rates in June, July and September," said Con Williams, agri-economist at ANZ.
A majority of analysts expect the central bank to ease again to stimulate a sluggish economy.
The kiwi had already gained nearly 1 percent on Tuesday and last stood at $0.6543. A break of $0.6556 would target $0.6685.
Also underpinning was a resurgence of carry trades where the market borrows at low rates in yen to buy higher-yielding currencies, such as the Antipodean currencies.
The kiwi rose to 78.81 versus the yen, the highest since Aug 24, while the Aussie popped above 86 yen, from a low of 82.76 touched last week.
All eyes are set on the Bank of Japan which may surprise some by adding more stimulus after its policy review later in the day. ID:nL3N12613D
The Australian dollar held near a three-week high at $0.7156, having gained 1.1 percent on Tuesday when the Reserve Bank of Australia (RBA) disappointed some by offering a neutral statement at its policy meeting.
The central bank, as expected, left interest rates unchanged at a record low 2 percent and offered no clues to indicate it may change its steady stance.
It reiterated that it would look to upcoming data to judge wheyher the current policy setting needed to be adjusted.
Interbank futures 0#YIB: modestly pared back the chances pf an easing by December to 40 percent from 50. They are, however, still fully priced for a quarter-point-cut by early next year.
Resistance for the Aussie was found at $0.7183 and a break would target a double top around $0.7275.
Australian government bond futures eased, with the three-year bond contract off 1 tick at 98.200. The 10-year contract shed 1.5 tick to 97.3500.
New Zealand government bonds were softer, sending yields 1.5 basis points higher along the curve.