The NZD/USD exchange rate jumped to its highest level since December 18 as the US dollar index retreated. It jumped to a high of 0.5730, up by almost 4% from its lowest point in February this year. So, what next for the NZD to USD exchange rate ahead of the RBNZ interest rate decision and Federal Reserve minutes?
US dollar index crashes
The NZD/USD exchange rate rose as the US dollar index slipped. Data shows that the DXY index has dropped from the YTD high of over $110 to $107. This decline happened even as the US published strong consumer inflation data and geopolitical risks escalated.
Data released last week showed that the headline consumer inflation rose from 2.9% to 3.0% in January. It was the fourth consecutive month that inflation has moved further away from the 2.0% target of the Fed. Core inflation moved to 3.3%, where it has remained for months.
US inflation will continue rising as companies boost prices because of tariffs applied by Donald Trump. For example, vehicle prices will jump by double digits now that steel and aluminum tariffs have soared by 25%. Prices will also rise because of the recent fires in Los Angeles.
The NZD/USD pair will react to the upcoming Federal Reserve minutes that will provide more information about the last meeting. In that meeting, the bank decided to leave interest rates unchanged and officials pointed to just two cuts this year.
Therefore, the US dollar index has likely crashed as investors embrace the new normal on tariffs and interest rates.
RBNZ interest rate decision
The NZD/USD pair will next react to the upcoming Reserve Bank of New Zealand (RBNZ) interest rate decision on Wednesday.
Economists expect the bank will continue cutting interest rates as the economic slowdown accelerates. Recent data showed that the headline consumer price index (CPI) remained unchanged at 2.2% in the fourth quarter, down from a high of 7.3% in 2022.
New Zealand’s economy has sunk into a recession, contracting for two straight quarters. Analysts expect that lower interest rates and some of the RBNZ policies will help stabilize the economy this year. For example, the government has changed policies on home ownership for foreigners in a bid to boost the economy.
NZD/USD technical analysis
The daily chart shows that the NZD/USD pair has been under pressure in the past few months. It tumbled from a high of 0.6377 in September last year to 0.5515 in February. It has now stabilized a bit, helped by the weaker US dollar.
The pair remains below the 100-day Exponential Moving Average (EMA), a sign that bears are still in control. It has also formed a bearish flag chart pattern, a popular bearish reversal sign.
Therefore, the pair will likely resume the downtrend as sellers target the lower side of the bearish flag pattern at around 0.5600.
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