Preparing for markets to overreact to US inflation?

  • ANZ’s Zollner foresees RBNZ lifting rates to 6%, potentially impacting NZD/USD and aiming for a yearly high.
  • Zollner and Westpac’s Eckhold clash on rate forecasts; Zollner anticipates a hike, while Eckhold leans towards a “higher for longer” scenario, expecting rates to stay at 5.50% until 2025.

The week has started slowly in FX, largely attributed to the closure of most Asian markets for New Year holidays. But this quiet period is likely coming to an end, driven by the impending release of U.S. inflation data on Tuesday, followed by UK inflation data the following day.  

Projections are for a decline in the annual US headline CPI to 2.9% in January from the previous month’s 3.4%, with the core gauge expected to show a more moderate decrease to 3.7% from 3.9%.   

A potential downside surprise in US CPI figures could send US dollar pairs lower, on heighted expectations for a March rate cut. On the 4hr chart, the GBPUSD is sitting at the 50-day moving average. A significant move to the upside could see the 200-day moving average come into view, with this level coinciding with the upper ATR band.  

Although, a question I have is whether it is really likely to move the dial toward a Fed March rate cut? Either way, this might not stop the market from getting its hopes up for the sake of feeling something, like a couple that picks fights just to feel anything other than boredom. 

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