The US Dollar rose on Monday, impacting the NZD/USD pair. The New Zealand Dollar is trading around 0.5810, down by 0.40% for the day. This is the third consecutive day of losses as the US Dollar strengthens after a recent dip.

Possible Changes in Monetary Policy

All eyes are on the Federal Reserve’s December meeting minutes to gauge potential monetary policy changes. There is a possibility of more rate cuts by the Fed in 2026, which could affect the strength of the US Dollar. The CME FedWatch tool shows an 82% chance that rates will remain the same at the Fed’s January meeting. On the other hand, the New Zealand Dollar is getting support from expectations of a rate hike by the Reserve Bank of New Zealand (RBNZ). Economic data from New Zealand indicates a recovery in Q3 activity. The RBNZ governor has mentioned that rates are likely to stay steady for now, but they may change if economic conditions keep improving. In the short term, the NZD/USD pair will be influenced by the US central bank’s signals, while the RBNZ’s outlook may provide a solid foundation for the New Zealand Dollar. Currently, the NZD/USD pair faces pressure as it trades around 0.5810 due to the US Dollar gaining strength. The market is eagerly awaiting the release of the Federal Reserve’s December meeting minutes tomorrow. This release will be crucial in shaping our expectations for monetary policy in early 2026.

The Fed’s Dovish Approach

The Fed’s dovish stance is a key theme, having already cut rates by 75 basis points throughout 2025. This decision was backed by easing inflation, with the November 2025 Consumer Price Index (CPI) showing a rate of just 3.1%. However, recent job market data has shown unexpected strength, adding uncertainty and contributing to the Dollar’s short-term rebound. In contrast, the Reserve Bank of New Zealand’s outlook provides strong support for the Kiwi dollar. New Zealand’s inflation remains high, recently reported at 4.7%, keeping the central bank cautious. This difference in policy between a Fed that is cutting rates and a potentially rising RBNZ lies at the heart of our trading strategy. With potential market volatility from the Fed minutes, traders should consider hedging. Buying short-dated put options on the NZD/USD can guard against a surprise hawkish tone in the minutes that may boost the US Dollar further. This strategy can help manage downside risk in the upcoming days. Looking ahead to January, if the Fed minutes confirm their commitment to a relaxed monetary policy, it would strengthen the case for the NZD/USD to rise. We could then consider building long positions, perhaps through call options expiring in the next quarter, to benefit from the growing interest rate difference. We recall a similar situation in late 2023, which led to a significant decline in the Dollar against other currencies. Create your live VT Markets account and start trading now.

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