NZD/USD Investors Enter Before the Fed

NZD/USD is 0.17 percent higher at the time of writing after rising from 0.6144 to 0.6161 in Tokyo trade. Today's focus is on the Federal Reserve in the wake of Tuesday's inflation report indicating persistent core inflation.

The US Consumer Price Index increased by 0.1% in May, following an increase of 0.4% in April. The core CPI also increased by 0.4% in May, increasing by the same margin for the third consecutive month. There is still a possibility that the FOMC will justify another 25-bp hike at the conclusion of the FOMC meeting, despite the dollar's initial knee-jerk losses.

FX markets were much less volatile than bond markets, with the benchmark US 10-year Treasury bond trading within a 15bp range overnight, according to ANZ Bank analysts.

''Although US bond yields are now back up near late-May highs, that hasn't helped the USD,'' analysts added, ''in part because while the data has reinforced the market's call for a Fed'skip' tomorrow, it also indicates we'll see additional tightening in the future, which will ultimately slow the US economy.

As for the Fed, TD Securities analysts stated that they ''maintain our long-held view that the Fed will tighten rates by a final 25 basis points in June to a range of 5.25 percent to 5.50 percent. If the Fed decides to'skip' the June meeting, we anticipate that the decision will be accompanied by hawkish communication signalling a likely rate hike in July.

''Whether the Fed hikes in June or July (or neither), the USD is concentrated on the near completion of the tightening campaign, tilting the risks towards a USD pullback in H2'', analysts argued.