The NZD/USD dropped to 0.5765 in early Asian trading, mainly due to a stronger US Dollar. Traders are looking forward to the US PCE inflation data, which will be released on Friday. Many expect the Federal Reserve (Fed) to lower interest rates by 25 basis points next week, which could offer slight support to the NZD/USD pair. The chances of a Fed rate cut next week have risen to 89%, up from 71% the week before. The Reserve Bank of New Zealand (RBNZ) recently reduced its Official Cash Rate to 2.25% and indicated that future adjustments will depend on economic conditions. Analysts believe New Zealand might pause further rate cuts, which may help the NZD against the USD.

US PCE Data and Its Impact

The upcoming US PCE inflation report is expected to show a 2.8% increase in headline PCE for September, with core PCE at 2.9%. If these figures are higher than expected, it could strengthen the USD, making it more challenging for the NZD/USD pair. New Zealand’s largest trading partner, China, significantly influences the Kiwi dollar, with its economic performance and dairy prices being crucial factors. The RBNZ targets an inflation rate of 1-3% and adjusts interest rates accordingly. A strong economy in New Zealand tends to boost the NZD, while shifts in overall market sentiment can alter its value—strengthening during positive periods. This article was written by Lallalit Srijandorn of FXStreet. As of December 5th, 2025, the NZD/USD pair is under pressure at around 0.5765. The market is primarily focused on the delayed US PCE inflation report for September, which is set to be released later today. This data is the final significant factor before the Fed’s interest rate decision next week. The main expectation is for the Fed to cut rates, with futures markets indicating an 89% chance of a 25-basis-point reduction. This sentiment has strengthened due to signs of a slowing US economy, such as last week’s job report, which revealed weaker job growth than anticipated. If today’s PCE reading is soft, it would likely confirm that the Fed will adopt a dovish stance.

RBNZ Policy Divergence

On the other hand, the RBNZ has indicated a pause in its rate-cutting efforts after lowering its rate to 2.25% last week. Recent data from late 2025 showed that New Zealand’s inflation remains somewhat stubborn, supporting the RBNZ’s decision to hold off on further cuts. This divergence in policies—where the Fed is becoming dovish while the RBNZ stays steady—could create a supportive environment for the Kiwi dollar. For derivative traders, today’s volatile PCE release can be managed using options strategies. A long straddle—buying both a call and a put option at the same strike price—could help profit from significant price changes in either direction. If the PCE data is much more positive or negative than the anticipated 2.8%, a notable movement is likely. As we look ahead, if the PCE data meets or falls below expectations, it could signal the chance to take long-term bullish positions on NZD/USD. Trading futures contracts to go long might capitalize on the expected Fed rate cut next week. Any decline in the pair after the data release could be seen as a buying opportunity. We should also monitor external factors affecting the New Zealand dollar. Recent purchasing managers’ index (PMI) data from China showed that its manufacturing sector is barely growing. Any further weakness or a drop in the Global Dairy Trade index could hinder the strength of the Kiwi. Create your live VT Markets account and start trading now.

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