Ella 
NZD/USD weakened around 0.6170 after pulling back from the 0.6200 mark during early Asian trade on Tuesday. The pair is trading lower despite weakness in the U.S. Dollar Index (DXY). Investors are awaiting the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday, which is expected to keep interest rates unchanged.
Recent U.S. inflation data showed that U.S. inflation continues to rise, prompting investors to lower interest rate inflation expectations. The Federal Reserve (Fed) has emphasized tightening policies to bring the inflation rate back to its 2% target, but prices are still far above this target. New York Fed President John Williams warned last week about the possibility of an early interest rate cut, adding that the central bank was expected to lower borrowing costs later this year.
The Reserve Bank of New Zealand is expected to hold the official cash rate steady at 5.5% on Wednesday, but the possibility of a rate hike remains as inflation struggles to tame. Since the central bank has kept rates unchanged since May last year, the market is pricing in a rate hike of 25%. The NZD/USD exchange rate has risen in recent weeks following hawkish comments from policymakers at the Reserve Bank of New Zealand. The bank’s chief economist Paul Conway said last month the bank still had some way to go to get inflation back to its 2% target, while Governor Orr said the bank still had some way to go to get inflation back to its 2% target. There is more work to be done on anchoring inflation expectations.
Traders will pay close attention to the Reserve Bank of New Zealand’s monetary policy meeting on Wednesday. U.S. fourth-quarter GDP growth data will be released later. Thursday will focus on the personal consumption expenditures (PCE) price index. These data could give NZD/USD a clear direction.
