NZD/USD flat lines below 0.5800, close to one-month top ahead of China inflation data

The NZD/USD pair stabilized during the Asian session on Wednesday, and appears to have halted the previous day’s modest decline from the 0.5800 area, or its highest level since late October. Spot prices are currently trading around the 0.5780-0.5775 area, virtually unchanged on the day, as traders opt to wait for the outcome of the two-day FOMC policy meeting before placing new bets.

The US Federal Reserve is scheduled to announce its policy decision later today, and is widely expected to cut interest rates by 25 basis points. Meanwhile, market focus will remain glued to updated economic forecasts, including the so-called “plot point,” and Fed Chairman Jerome Powell’s comments during the post-meeting press conference. Investors will be looking for more signals about the path of future Fed rate cuts, which in turn will impact the near-term US dollar price dynamics and provide new directional momentum for the NZD/USD pair.

Heading into a major central bank risk event, some repositioning is helping the US dollar sustain recent recovery gains from the lowest level since late October, which it touched last Friday, and acting as a headwind to spot rates. However, the Reserve Bank of New Zealand’s (RBNZ) hawkish outlook on future policy path may continue to support the New Zealand Dollar (NZD) and favor NZD/USD bulls. In fact, the Reserve Bank of New Zealand signaled the end of its easing cycle after cutting interest rates by 25 basis points, to the lowest level in more than three years, in November.

Traders are now looking forward to the latest inflation numbers from China, which will increase demand for counter currencies, including the NZD, and produce short-term trading opportunities. However, the above-mentioned supportive fundamental backdrop suggests that the path of least resistance for NZD/USD remains to the upside. Hence, any corrective pullback may still be viewed as a buying opportunity and will likely be limited.