The NZD/USD pair is on the rise, boosted by a weakening USD after the Federal Reserve signaled a more cautious approach. Traders expect additional rate cuts in the US following comments made by Fed Chair Jerome Powell, which have helped increase positive market sentiment and strengthen the Kiwi. Currently, NZD/USD is stable above 0.5800, reaching a two-month high. The USD has dropped to its lowest point since October 24 after the Fed cut rates and hinted at a pause in rate cuts in January. However, the market remains hopeful for more reductions in 2026, supported by Powell’s comments regarding the US labor market.

Hawkish Stance of the RBNZ

The New Zealand Dollar is also gaining strength due to the Reserve Bank of New Zealand’s (RBNZ) hawkish stance, which contrasts with the outlook from the US. After a rate cut in November, the RBNZ’s approach differs from the Fed’s and supports NZD/USD’s upward movement. This optimism remains intact even with no major economic reports expected on Thursday. In a currency comparison, the USD is weakening against major currencies. In November, it fell by 1.33% against the JPY and declined against several others. A summary of USD performance highlights its strength variations against the EUR, GBP, and CAD, showing monthly exchange rate fluctuations. The Federal Reserve’s rate cut has weakened the US dollar, pushing the NZD/USD pair to its highest level in over two months. Traders are now pricing in at least two more rate cuts for 2026, indicating a continued weak dollar environment. This sentiment is backed by recent US economic data showing a weaker dollar outlook. The November jobs report revealed a slowdown, with non-farm payrolls adding only 95,000 jobs, and the Consumer Price Index dropped to 2.8%. These numbers provide the Fed with a reason to ease policies further in the coming year.

New Zealand Dollar Strength

Meanwhile, the New Zealand Dollar is gaining its own strength. The RBNZ indicated a pause in its easing cycle last month, supported by persistent inflation in New Zealand, which remains high at 4.5% for the third quarter. This gap between the dovish Fed and the hawkish RBNZ creates a clear upward trend for the NZD/USD pair. Given this strong upward momentum, consider buying NZD/USD call options with expirations in the first quarter of 2026. This would allow us to benefit from the anticipated rise in the pair while limiting potential losses to the premium paid. It’s wise to establish positions now, before the trend is fully accounted for. We’ve seen similar policy differences lead to lasting trends in the past. For instance, toward the end of 2023, market expectations for Fed cuts while other central banks paused led to a significant decline in the dollar over several months. History shows these trends can continue, making it ill-advised to go against the current momentum favoring a stronger Kiwi against the dollar. Create your live VT Markets account and start trading now.

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