The NZD/USD pair has retreated from a four-month high due to a slight rise in the US Dollar during the European session. The pair has dropped below 0.5900, showing a 0.15% decline. However, this change is tempered by expectations about different policies from the Reserve Bank of New Zealand and the US Federal Reserve. Recent statistics show that New Zealand’s annual consumer inflation rose to 3.1% in the fourth quarter, exceeding the central bank’s targets. This increase suggests the Reserve Bank of New Zealand might raise interest rates. Additionally, positive trends in equity markets could help support the New Zealand Dollar, even with recent losses caused by a modest bounce in the US Dollar.

US Federal Reserve Outlook

The possibility of the US Federal Reserve lowering borrowing costs this year may limit the US Dollar’s recovery. A breakout above the 200-day Simple Moving Average indicates a bullish trend, but caution is necessary before confirming any decline. Upcoming US PMI data will be crucial for the movement of the NZD/USD pair. This week, the New Zealand Dollar had mixed results against major currencies, showing notable strength against the Japanese Yen. A heatmap illustrates these changes in currency values, reflecting fluctuations throughout the week. Looking back at January 2025, the NZD/USD pulled back from a four-month high following strong New Zealand inflation data. At that time, the main idea was that the difference between a hawkish Reserve Bank of New Zealand (RBNZ) and a dovish US Federal Reserve would limit any downturn, suggesting that any dip could be a buying opportunity. Today, this gap in policy continues to be a key factor for our approach. The recently reported inflation for New Zealand in Q4 2025 is 2.6%. Although this is lower than the previous year’s 3.1%, it is still above the RBNZ’s 2% target, putting pressure on the bank to maintain a strict stance. In contrast, the latest US inflation data from December 2025 was 2.2%, allowing the Federal Reserve more room to consider easing policies later this year.

Trading Strategy Outlook

The ongoing divergence between these two central banks supports last year’s strategy of buying during weakness. We should view any dips below key technical levels, like the current 200-day moving average around 0.5950, as potential entry points for long positions. The market expects the RBNZ to keep its cash rate at 5.50% longer than the Fed, providing strong support. For derivative traders, this outlook makes buying NZD/USD call options on pullbacks an attractive strategy to benefit from expected gains. Historically, we saw a similar pattern after the January 2025 report, with the pair climbing toward the 0.6200 level by mid-year. This past performance suggests that the current market conditions are favorable for bullish bets. Create your live VT Markets account and start trading now.

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