NZD shows signs of recovery from last week's sell off

The Kiwi has had a soft start to the week, though it has recovered some of last week's losses following the RBNZ's limited change in its MPS outlook. Kiwi data has been limited in NZ so far this week, with the focus largely on global developments driving FX movements. One strengthening in theY en over the past week, which hit its strongest level in seven months,surpassing levels seen after last month's US$96.8bn intervention.Reports also pointed to stop loss buying of yen, which pushed USD/JPY below 155 for the first time since the coordinated intervention between the US and Japan five weeks ago. The move reflects growing conviction that the BoJ will hike rates at next week's meeting, combined with a market view that Japanese authorities remain ready to intervene whenever needed, a stance that's likely to keep supporting the yen in the months ahead.Turning to the Middle East, oil prices continued to climb early this week after fresh attacks on tankers in the Strait of Hormuz and renewed strikes on a Saudi refinery raised fears of a prolonged Gulf supply disruption,with rising Chinese demand adding further support. Gains eased slightly on news of a possible Iran-Oman deal to ease shipping risks through the strait.Looking ahead the key focus will be on both ECB policy rate decision on Thursday, followed by US CPI data due on Friday. In our view, we expect the ECB to hike rates again amid the Iran-driven energy shock, but we think this marks the cycle's end rather than the start of further tightening. Indeed, we think current market pricing for additional hikes looks overdone. We see euro risks skewed to the downside into the decision.On US CPI data, markets expect headline CPI to rise 0.4% MoM (3.4%YoY), with core inflation up 0.2% MoM and the annual rate easing to 2.4%.This is the last inflation print the Fed will see before its meeting this month, though PCE remains its preferred gauge. Markets are pricing around 60% odds of a September hike. We think inflation pressures have not broadened as much as feared, with core running at 2.4% annualised on a 6 month basis (1.6% on 3 months), easing from 3.2% in May. This supports our view that the Fed holds rates steady for the rest of the year.Apart from this, the RBNZ Assistant Governor Karen Silk speaks later this morning. With the RBNZ having only just met last week and updated its forecasts, there may be limited fresh signal, though any additional colour on the MPC’s thinking could still have implications for markets.