(Bloomberg) -- Not even a dovish Reserve Bank of New Zealand has prevented a kiwi rebound extending, but that’s not stopping some investors from positioning for weakness with one eye on this week’s key inflation data.

A split has opened up between modestly bullish leveraged funds and their much more bearish asset manager counterparts, according to a tally of New Zealand dollar positioning bets from the Commodity Futures Trading Commission. The fast money contingent are recent winners with the kiwi up some 6% from its end-of-May low against the greenback, though the currency is still little changed on the year.

New Zealand’s second-quarter inflation report due this week may be the catalyst for a sharper rethink of the central bank’s path for interest rates and their impact on the currency. The RBNZ left rates unchanged at 5.50% last week — its first pause in almost two years — amid signs that a weaker economy is leading to slowing price pressures. 

“We expect 5.50% will be the peak in this tightening cycle,” Kristina Clifton, senior economist at Commonwealth Bank of Australia, wrote Wednesday. “A further unwinding of financial market pricing for RBNZ rate hikes can weigh on the kiwi.”

Second-quarter inflation is projected to slow to 5.9% year-on-year from 6.7% in the prior quarter in data. Proof that inflation is trending lower would likely weigh on the New Zealand dollar if it spurs a further unwind of expectations for potentially one more rate hike by the RBNZ this year. 

“Although the kiwi has been buoyed recently by the falling US dollar, it is approaching range highs near $0.64,” said RBC Capital Markets strategist Alvin Tan. “Another drop in the quarterly CPI print should see it turn back from the highs as the market prices in more rate cuts in 2024.” 

The New Zealand currency traded around the $0.6361 level on Monday.

Local lender Kiwibank expects a fall to $0.55 by year end as price pressures slow.

“Inflation has peaked and the economy is in recession,” economists including Jarrod Kerr wrote in a note last week. “A softer terms of trade (export prices), weakening growth and compliant inflation means lower interest rates and narrowing interest rate differentials.” 

Here are the key Asian economic data due this week:

  • Monday, July 17: China 1-yr medium-term lending facility, 1Q GDP, June industrial production, retail sales and fixed assets ex-rural New Zealand performance services index, Indonesia trade balance, Singapore non-oil domestic exports
  • Tuesday, July 18: RBA minutes to July meeting,
  • Wednesday, July 19: New Zealand 2Q CPI,
  • Thursday, July 20: Australia employment change and 2Q business confidence, China 1- and 5-year loan prime rate, Japan trade balance, Taiwan export orders, Malaysia trade balance
  • Friday, July 21: Japan CPI, South Korea PPI and 20-day exports/imports

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