AUD/JPY extended its run to a fourth session, trading near 111.00, while NZD/JPY sat around 89.50, its weakest since February, with both still well below August levels. Markets are positioned for the Bank of Japan to lift its policy rate to 1.25% on Friday, the highest since 1993, tightening the maths of funding trades that borrow Yen at about 1% to buy higher-yielding AUD at 4.35% or NZD at 2.75%. On that basis, the post-decision carry would be about 3.10% for AUD and 1.50% for NZD; at 89.42, the NZD carry equates to roughly one and a third Yen a year, while AUD/JPY offers about three and a half Yen, against falls of more than six Yen from ~95.00 for NZD/JPY and five from ~115.00 for AUD/JPY since August.
Positioning has also shifted: CFTC data show large speculators moved from net short 92.2K Yen contracts to net long 10.8K in the week to 8 September, a swing of about 103K and the biggest weekly change since early August. New Zealand’s GDP rose 0.2% in Q2 versus a 0.1% forecast, after 0.9% previously, as the RBNZ raised rates to 2.75% on 2 September with inflation at 4.1% headline and 2.9% ex-fuel. In Australia, the RBA held 4.35% in August ahead of a 29 September meeting, with underlying inflation at 3.6%; AUD/JPY remained above its 200-day average near 110.00, while NZD/JPY traded more than two Yen below its own. Ahead of Friday’s 03:00 GMT statement and 06:30 GMT press conference, Bullock speaks at 23:30 GMT alongside Japan’s August CPI ex fresh food forecast at 1.8%, while New Zealand trade data print at 22:45 GMT with oil near $97.50; markets price a quarter-point hike with about 97% probability and roughly nine-tenths of a point of further increases over 12 months. Technical levels cited include AUD/JPY resistance at 111.00 and 111.50, support near 110.00 and just above 109.50, and NZD/JPY capped at 89.50 with 90.00 above and supports at 89.00 and 88.96; Stoch RSI sits near 13 for AUD/JPY and near 5 for NZD/JPY.
Implications For The Carry Trade And Market Positioning
We are facing a massive shift in the currency markets as the Bank of Japan prepares for its highly anticipated interest rate decision tomorrow. Markets have priced in a quarter-point hike to 1.25%, which would mark the highest borrowing costs in Tokyo since 1993. This looming decision has already triggered a historic unwind of the popular Yen carry trade, forcing us to quickly adjust our derivative strategies.
Recent CFTC positioning data reveals that speculative traders recently executed one of their largest flips on record, turning a net short position of over 92,000 contracts into a net long. This means the broader market is now heavily crowded on one side of the trade, leaving them highly vulnerable if policymakers deliver a more cautious outlook than expected. Furthermore, with Japanese 10-year government bond yields hovering near three-decade highs, domestic institutional capital is steadily flowing back home from Australia and New Zealand.
Derivative Strategy Outlook And Event Risk
For derivative traders looking at the Australian Dollar, we recommend maintaining a bullish bias on AUD/JPY as long as the key support level at 110.00 holds. The daily Stochastic RSI is currently hovering near deep oversold territory at 13, pointing to a strong technical potential for an upward correction. If the pair secures this floor, we should target short-term upside objectives at 111.50 and 112.50 over the coming weeks.
Conversely, we should treat the New Zealand Dollar with caution and maintain a bearish bias on NZD/JPY as long as the 90.00 level acts as resistance. New Zealand’s sluggish economic growth of just 0.2% and a widening trade deficit weighed down by high global oil prices make the Kiwi far more fragile than its Australian counterpart. A failure to reclaim 90.00 will likely push this pair down toward support targets at 89.00 and 88.50.
We must also closely watch the upcoming speech from RBA Governor Bullock and Japan’s national CPI release to gauge immediate volatility before the main event. Political pressure from Prime Minister Sanae Takaichi for easier money could easily force the central bank to strike a delicate, cautious balance in its guidance. Any dovish phrasing during tomorrow’s press conference could trigger a rapid two-Yen swing in the crosses, making tight risk management absolutely essential.
