NZD/USD flat lines below 0.5800, close to one-month top ahead of China inflation data

NZD/USD enters a bullish consolidation phase on Wednesday ahead of the FOMC rate decision.
The divergent Fed-RBNZ policy outlooks continue to support spot prices and limit the downside.
China’s inflation figures could provide some impetus ahead of the key central bank event risk.

Haresh Menghani FXStreet

The NZD/USD pair holds steady during the Asian session on Wednesday and for now, seems to have stalled the previous day's modest pullback from the 0.5800 neighborhood, or its highest level since late October. Spot prices currently trade around the 0.5780-0.5775 region, nearly unchanged for the day, as traders opt to wait for the outcome of a two-day FOMC policy meeting before placing fresh bets.

The US Federal Reserve (Fed) is scheduled to announce its policy decision later today and is widely expected to cut interest rates by 25 basis points (bps). Meanwhile, the market focus will remain glued to updated economic projections, including the so-called dot plot, and Fed Chair Jerome Powell's comments during the post-meeting press conference. Investors will look for more cues about the Fed's future rate-cut path, which, in turn, will influence the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the NZD/USD pair.

Heading into the key central bank event risk, some repositioning trade assists the USD to preserve its recent recovery gains from the lowest level since late October, touched last Friday, and acts as a headwind for spot prices. However, the Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path might continue to underpin the New Zealand Dollar (NZD) and favor the NZD/USD bulls. In fact, the RBNZ signaled an end to its easing cycle after lowering its policy rate by 25 bps, to the lowest level in more than three years, in November.

Traders now look to the release of the latest inflation figures from China, which will drive demand for antipodean currencies, including the Kiwi, and produce short-term trading opportunities. Nevertheless, the aforementioned supportive fundamental backdrop suggests that the path of least resistance for the NZD/USD pair remains to the upside. Hence, any corrective pullback might still be seen as a buying opportunity and is more likely to be limited.

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the National Bureau of Statistics of China on a monthly basis, measures changes in the price level of consumer goods and services purchased by residents. The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Renminbi (CNY), while a low reading is seen as bearish.

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