The NZD/USD pair will be the forex pair to watch this week as the Reserve Bank of New Zealand (RBNZ) delivers its first interest rate decision on Wednesday. The pair traded at 0.6197 on Friday, 2.65% above its lowest point this year. 

The NZD to USD pair continued moving sideways ahead of the key RBNZ decision. In it, analysts have mixed opinions about what to expect. Some economists expect the RBNZ will leave rates unchanged at 5.50% as it has done in the past five meetings. 

On the other hand, some economists believe that the RBNZ will surprise the market with a 25 basis point increase. If this happens, it will become the only central bank to hike rates in the past few months.

The RBNZ may consider hiking because inflation in the country remains significantly higher than its 2% target. Recent data showed that the headline Consumer Price Index (CPI) rose 4.7% in the fourth quarter after rising 5.6% in the previous one. 

This inflation rate was the smallest increase in two years. However, it remained above the RBNZ target of 2.0%. It is even more than double that target.

However, the RBNZ may leave rates unchanged because the country’s economy is not doing well. The most recent report revealed that the economy contracted unexpectedly in the third quarter as high interest rates curbed spending. Therefore, another rate hike could make the situation worse in New Zealand.

The NZD/USD pair will also be in the spotlight ahead of the upcoming US economic numbers. The country will publish the second estimate of Q4 GDP on Thursday followed by January’s PCE report. PCE is an important figure because it is the Fed’s favourite inflation gauge.

This report comes after the latest FOMC minutes revealed that most officials expect the bank to maintain high rates for a while.

NZD/USD chart by TradingView

The NZD to USD exchange rate remained in a tight range on Friday. A closer look shows that it has remained above the 50-period and 25-period moving averages, which is a positive sign. The other notable thing is that it has formed an inverse head and shoulders pattern. It has also moved slightly above the neckline of this pattern. 

Therefore, the outlook for the NZD/USD pair is bullish, with the next point to watch being the 61.8% retracement point at 0.6245.

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