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We’ve got top tier events for both the Loonie and Kiwi this week, making this downtrend in NZD/CAD one to watch!

Will volatility spike and spark a bounce in the downtrend? If so, is that another short opportunity or the beginnings of a bullish reversal?

NZD/CAD: 4-hour

NZD/CAD 4-Hour Forex Chart
NZD/CAD 4-Hour Forex Chart

NZD/CAD bears have been loving the past couple of months as the pair marched lower after topping out just under the 0.8900 back in November.

Right now, there’s nothing that is likely to derail this move, but we do have major economic events ahead for both the New Zealand Dollar and Canadian Dollar for forex traders to watch out for.

First up is the latest monetary policy decision from the Bank of Canada this Wednesday (Jan. 26, 3:00 pm GMT). Analysts think that there is a possibility that the BOC will raise interest rates this week, earlier than previous expected, due to record inflation rates.

We’ll have to see what we get when we get there, but the range of possibilities of what they may say or do is pretty wide (e.g., “no hike & cautious optimism” to “hike & pushing forward future hikes”), so it’s likely a good idea to stay on the sidelines for the Loonie until after the event.

Second, we’ve got the latest inflation data from New Zealand coming  a few hours after the BOC (Jan. 26, 9:45 pm GMT). Expectations are for the inflation numbers to be at a record pace of 5.5% annually, which would further solidify speculation that the RBNZ will continue to hike interest rates to fight inflation.

Recent quarterly forecasts on this number have way under the actual reads over the past two quarters, so we think that this is more of a wait-and-see situation than an event to get a position going beforehand.

With those thoughts, we’ll be looking out for both events to be bullish for their respective currencies, but unless we see a far out scenario from expectations, we think the Loonie will likely continue to outperform the New Zealand dollar for now.

So, if event volatility takes the pair to the broken area of previous interest highlighted on the chart above (between 0.8500 – 0.8550), we’ll be watching out for bearish reversal patterns (and an overbought stochastic signal) before considering hopping on that longer-term downtrend.

But what do y’all think? Are the economic events going to play out much differently than expected? Will that lead to a longer-term reversal or an accelerated move lower? Please let us know in our comment section below!

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