NZD/USD trades flat around the mid-0.6100s ahead of PBoC rate decision

• NZD/USD trades on a flat note near 0.6148 in Tuesday’s early Asian session.
• The upbeat inflation data has prompted Fed policymakers to ramp up their cautious stance on interest rate cuts this year.
• RBNZ’s Orr said the central bank must continue to contain inflation expectations, implying that it will not soon cut the rates.

The NZD/USD pair trades flat during the early Asian session on Tuesday. The market trades in a quiet session after a US holiday. The People’s Bank of China (PBoC) will announce its decision on interest rates on Tuesday. Meanwhile, some pushback against rate cut expectations from the Federal Reserve (Fed) might lift the Greenback and cap the upside of the pair. At press time, NZD/USD is trading at 0.6148, losing 0.02% on the day.

The stronger-than-expected inflation data has Fed policymakers doubling down on their wait-and-see approach to interest rate cuts this year. Investors will take more cues from the FOMC Minutes on Wednesday. The markets have priced in a 75% odds of a rate cut from the Fed in June, according to the CME’s FedWatch Tool.

On the Kiwi front, Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said last week that the central bank still needs to ensure that inflation expectations are contained, suggesting it won’t be signaling a pivot to interest rate cuts soon. This, in turn, boosts the New Zealand Dollar (NZD) in the previous sessions and acts as a tailwind for the NZD/USD pair. Two-year inflation expectations declined to a two-and-a-half-year low of 2.5% in the first quarter and the RBNZ expects inflation to return to 2% in three years, though that time frame will also depend on its tolerance for the impact of any transitory inflation shocks.

Looking ahead, market players will monitor the PBoC interest rate decision. On Wednesday, the New Zealand Q4 Producer Price Index (PPI) will be due, and Fed's Bostic is set to speak. The highlight of this week will be the FOMC Minutes on Wednesday. This event could give a clear direction and trading opportunities for the NZD/USD pair.