The NZD/USD fell to about 0.5760 early Thursday in Europe, continuing the trend from the previous day. This drop came even after New Zealand’s GDP rose by 1.1% in Q3, surpassing the expected 0.9% increase. This suggests that stronger growth may not lead to higher inflation. On an annual basis, New Zealand’s GDP grew by 1.3% in Q3, recovering from a prior decline. However, expectations for a rate hike by the Reserve Bank of New Zealand (RBNZ) have dwindled. Markets now see only a 40% chance of a rate increase by July next year, down from 50%.

US Dollar Stability

This situation aligns with stability in the US Dollar as traders await the US Consumer Price Index (CPI) report for clues about inflation. The CME FedWatch tool shows a 75.6% chance of the US Federal Reserve keeping rates steady at their January meeting, a slight rise from last week. The New Zealand Dollar, influenced by the country’s economic health, central bank policy, and trade with China, might also be impacted by fluctuations in dairy prices. Economic data and market sentiment play a significant role in currency value, affecting the RBNZ’s decisions. Given the current weakness in the NZD/USD, trading close to 0.5750, we expect continued downward pressure. The stronger-than-expected Q3 GDP growth isn’t causing inflation concerns, making a rate hike from the RBNZ unlikely for now. With the RBNZ on hold, any chance of an upward movement for the Kiwi seems off the table for the next few weeks. The focus is now on the US CPI data set to release later today. A higher-than-expected reading, like the anticipated 3.1%, could support the Federal Reserve’s cautious approach to rate cuts and boost the US Dollar. US inflation has decreased from over 9% in 2022, but this last phase is proving challenging, keeping the Fed on edge.

Trading Strategies

For derivative traders, this scenario suggests a bearish view on the NZD/USD pair. Buying put options might be a good move to capitalize on a potential decline, especially if the US CPI data shows strong inflation. This strategy allows for downside exposure while limiting the maximum loss to the premium paid. The differing policies between a dovish RBNZ and a patient Fed are key points to consider for trading. Shorting NZD/USD futures contracts expiring in January 2026 could be a solid strategy, aiming for a move toward the year’s lows. Charts from early 2025 indicate that a sustained drop below the 0.5700 support level could lead to further declines. We should also keep an eye on external factors, as the Kiwi is sensitive to global risk sentiment and data from China. Recent industrial production numbers from China have been disappointing, signaling potential weakness in New Zealand’s export demand. Another poor result in the upcoming Global Dairy Trade auction would further support a short position on the New Zealand Dollar. Create your live VT Markets account and start trading now.

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