Chart of the day: NZDUSD (12.07.2023)

Today's trading session is likely to prove pivotal to the week's trading as a result of the scheduled CPI data reading from the US, the BoC's interest rate decision and the reaction to this morning's RBNZ decision. 

The Reserve Bank of New Zealand left interest rates unchanged at 5.5%, in line with widespread expectations. Importantly, however, the RBNZ communicated that it would keep the OCR rate "at a restrictive level for the foreseeable future to ensure that consumer price inflation returns to its target range of 1 to 3 per cent per annum, while promoting maximum sustainable employment".

The immediate report following the Council's decision indicated that the RBNZ may already be moving towards the end of rate rises, however. Bankers communicated that New Zealand's monetary policy had reached tighter macro conditions earlier than in other world economies. In addition, domestic consumption is falling in line with expectations and the labour market is showing signs of stabilisation. Inflation dynamics are expected to decline in line with the path of the RBNZ forecasts, the bankers added. 

The initial session saw high volatility on the NZDUSD pair immediately after the RBNZ decision. Quotations managed to test the area of recent local peaks on the H4 interval (chart below), nevertheless the early rallies were largely erased. The key for further trading will be today's CPI reading from the US, which will be one of the most important components creating future FOMC interest rate decisions. Analyst consensus is for the y/y reading to decline markedly from the momentum seen earlier, with m/m inflation accelerating slightly (core m/m inflation is expected to decline). 

01:30 pm BST, USA - CPI inflation:

• YoY. Expected - 3.1% y/y, Previously - 4% y/y

• YoY Core. Expected - 5% y/y, Previous - 5.3% y/y

• MoM. Expected - 0.3% m/m, Previously - 0.1% m/m

• MoM Core. Expected - 0.3% m/m, Previous - 0.4% m/m

Source: xStation 5