Australian and New Zealand Dollars dig in ahead of a Japanese rate hike

The Australian Dollar and New Zealand Dollar are currently trading near 111.00 and 89.50 against the Japanese Yen, respectively. These figures mark a significant drop from their positions in August. The Bank of Japan (BoJ) is set to raise its interest rate to 1.25% on Friday, which is anticipated to impact the trade between currencies that borrow Yen at low rates to purchase currencies with higher interest rates.

Investors have been exiting their positions prior to the BoJ's decision, which could affect the outcome of the meeting. Japanese institutions, which directly borrow Yen, are not required to report their trading activities weekly, adding to the uncertainty surrounding the situation. The 10-year Japanese government bond yield is at a 30-year high, prompting financial institutions to bring their savings back to Japan rather than continue sending money abroad.

In New Zealand, the economy grew by 0.2% in the second quarter, meeting market expectations. The Reserve Bank of New Zealand (RBNZ) increased its interest rate to 2.75% on September 2 and is expected to raise it further this year. New Zealand's inflation rate stands at 4.1%, excluding fuel prices, which is prompting the bank to continue raising rates due to the impact of oil prices.

Conversely, Australia's inflation rate is 3.6%, and the Reserve Bank of Australia (RBA) has held its cash rate at 4.35% since August. With the RBA Governor to address the audience on September 29, there is a possibility of an interest rate hike before the year ends. The Australian Dollar is trading above its 200-day average near 110.00, while the New Zealand Dollar is below its 200-day average near 89.50.