By Yasuhiko Seki and Candice Zachariahs April 7 (Bloomberg) -- The Australian dollar advanced to the highest level in more than 18 months versus the yen as the Bank of Japan kept interest rates near zero today, maintaining the yield advantage of the South Pacific nation over Japan. The so-called Aussie also traded near a two-month high against the greenback and a record against the euro after a rate increase yesterday by the Reserve Bank of Australia added to the appeal of the nation’s assets. Gains in the Aussie against New Zealand’s dollar were limited after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said milk powder prices reached a 21-month high. “A widening yield advantage and positive economic data will support Australia’s dollar,” said Daisaku Ueno, president at Gaitame.Com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The Aussie will stay one of the favorite currencies as the economy grows.” The Aussie rose to as high as 87.52 yen, the most since September 2008, before buying 87.16 as of 3:41 p.m. in Sydney from 87.07 in New York yesterday. It traded at 92.65 U.S. cents from 92.84 yesterday, when it touched 92.89, the most since Jan. 15. Australia’s dollar bought 0.6926 euro after touching 0.6940, the highest since the single currency’s introduction in 1999. New Zealand’s dollar traded at 70.39 U.S. cents from 70.67. It bought 66.22 yen from 66.28 yen. The kiwi fell as low as NZ$1.3235 per Aussie dollar yesterday, the least since 2000, before trading at NZ$1.3161 today. Central Bank Rates Bank of Japan Governor Masaaki Shirakawa and his colleagues voted unanimously to leave their target rate at 0.1 percent at a two-day meeting ended today, in line with forecasts by all 21 economists surveyed by Bloomberg News. The RBA raised its main rate to 4.25 percent yesterday, the fifth increase in six meetings. The central bank said borrowing costs need to be “closer to average” amid an expanding domestic economy and growth in Asia. “The Australian dollar recently seems to have broken out of its downtrend range that had been prevailing since last November,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, said in an interview with Bloomberg Television. “It seems to be breaking out on the upside, supported by talks of more interest-rate hikes.” The RBA will raise the policy rate up to 5.0 percent in the first quarter of next year, while the BOJ will stand pat on borrowing costs, according to a Bloomberg survey of economists. Risk Sentiment Australia’s dollar rose for a seventh day in eight sessions versus the yen before a report tomorrow economists in Bloomberg surveys forecast will show employers in the nation added 20,000 jobs in March. “The continued recovery across the globe and a bull run in stocks improve risk sentiment, encouraging investors to buy higher-yielding assets outside Japan, such as the Aussie,” said Takashi Kudo, a market-information manager in Tokyo at NTT SmartTrade Inc., unit of Nippon Telegraph & Telephone Corp. The MSCI Asia Pacific Index of regional shares advanced 0.6 percent and the Nikkei 225 Stock Average gained 0.2 percent. New Zealand’s dollar rebounded from the lowest level versus the Aussie since 2000 after Auckland-based Fonterra said whole milk powder for June delivery rose 24 percent to $4,092 a metric ton. Dairying is New Zealand’s biggest export earner. New Zealand Finance Minister Bill English said he would prefer the nation’s currency to be lower to bolster exports. The local dollar’s gains reflect weakness in other currencies, English said in a video statement released in Wellington today. Usually the New Zealand dollar is much lower at the current stage in the economic cycle when the nation emerges from a recession, he said. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell 2.5 basis points to 4.265 percent. Australian government bonds were little changed, with the yield on 10-year notes at 5.85 percent, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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