The two Glaswegian giants come face to face for the fourth time this season at Ibrox, with both sides looking for a place in the final eight of the competition.
The Hoops are yet to beat the Gers this season, losing twice and sharing the spoils when the bitter rivals met at Parkhead in late March.
Since then, interim manager John Kennedy has claimed that his side are still the “best team in Scotland”, and speaking to the Daily Record, Nicholas argued that his approach to Sunday's match needs to be as positive as his recent comments.
He said: "Rangers are favourites going into the Old Firm clash in the Scottish Cup.
"Celtic put on a very pleasing display at the weekend against Livingston, playing well and scoring lots of goals.
"I don't agree with John Kennedy's suggestion that they are suddenly the best team in the country because of that result, but I like the positivity that he is showing.
"The problem for Celtic is that John isn't sure what his best starting XI is.
"I am a fan of Mohamed Elyounoussi. He is frustrating at times, but he is a good player on his day and can get into areas where he can hurt Rangers.
"John has to go for it - if his team is as bold as some of his comments he has made over the last week then that would please me."
Sutton also made reference to Kennedy’s proclamation during his own assessment of this weekend’s tie, arguing that the Bhoys chief may have made a rod for his own back with his overly-ambitious claim.
He said: "There are a few in that team who need to prove a point or two, especially after John Kennedy made his bold statement about Celtic being the best team in the country.
"I don’t see any basis from the evidence of this season to suggest that’s the case. It made no sense to me to even say it.
"He may have been trying to boost his players. Unfortunately he’s also done Rangers’ team talk for them.
"If the roles were reversed and I’d have been in the Celtic dressing room with us 20-odd points clear, already crowned champions and a Rangers manager had said that, I’d have laughed my head off.
"Then I’d have gone out, still laughing, intent on rubbing their noses right in it and proving a point. I’m pretty sure that’s going to be the chat in the Ibrox dressing room and the attitude walking out tomorrow."
Rangers defender Borna Barisic took a somewhat dim view of Kennedy’s comments too.
Speaking in a press conference this week, he said: “It’s the biggest joke I’ve heard this season.
“They didn’t win against us in three games and we are twenty points in front of them so it’s a little bit disrespectful to us.
“You always need to be realistic. If someone is twenty points ahead of you, you just don’t talk like that.”