The Australian dollar will advance against New Zealand’s as Japanese investors favor the larger nation’s currency when buying assets abroad in search of greater yields, RBC Capital Markets said today in a note to clients. Buying the Australian dollar against the yen is the “most favored long” position among Japanese margin traders, while long positions in the New Zealand dollar have “flatlined” over the past month, wrote Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney, citing data from the Tokyo Financial Exchange. A long position is a bet that an asset will increase in value. “We expect this recent trend of Japanese leveraged investors favoring the Australian dollar over New Zealand’s will continue,” she wrote. New Zealand is falling out of favor with investors as economists forecast central bank Governor Alan Bollard will add to 5.25 percentage points of cuts since July as he struggles to turn around an economy the government says has probably been shrinking for 1 1/2 years. The bank will cut its benchmark by 0.5 percentage point to 2.5 percent on April 30, according to the median estimate of 12 economists surveyed by Bloomberg News. Australia’s dollar traded at NZ$1.2644 as of 2:52 p.m. in Sydney, and has advanced 2.3 percent this month. Investors may benefit from buying Australian dollar call options with a strike price of NZ$1.31, the bank said. Call options give the holder the right to buy a currency at a set price on a fixed date. They can reduce the cost of buying the options by also selling call options on the Australian dollar with a strike price of NZ$1.36, Trinh wrote. Net Buyers Japanese investors were net buyers of foreign bonds of 1.03 trillion yen ($10.7 billion) during the week ended April 17, the most since the week ended Feb. 20, according to the Ministry of Finance. Benchmark interest rates are 3 percent in Australia and New Zealand, compared with 0.1 percent in Japan, attracting investors to the South Pacific nations’ assets. “Greater urgency on the part of the Reserve Bank of New Zealand to cut rates in the near term will push the Australia- New Zealand swap spread substantially into positive territory, underpinning the Australian dollar versus the New Zealand dollar,” RBC’s Trinh wrote. The biggest scope for gains will be between July and September, she said. The spread between the fixed payment made to receive floating rates in New Zealand and Australia for two years was 0.24 percentage points and last favored Australia on Feb. 27. The RBNZ has slashed rates 5.25 percentage points since July to a record low and Governor Bollard said April 1 that rates may “remain at relatively low levels for an extended period.”

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