The New Zealand Dollar has been increasing for eight days in a row against the US Dollar. Rising inflation in New Zealand is above expectations, indicating possible monetary tightening, which is boosting the New Zealand Dollar. At the same time, a drop in US Consumer Confidence and political uncertainty is weakening the US Dollar. On Tuesday, NZD/USD rose by 0.65%, reaching 0.6015, the highest level since July 2025. New Zealand’s annual consumer inflation hit 3.1% in Q4, exceeding the Reserve Bank of New Zealand’s target. This situation may lead to interest rate increases, further strengthening the NZD. Market watchers are also cautious about upcoming trade data and China’s 2025 industrial profit results.

US Consumer Confidence Declines

In the US, the Consumer Confidence Index fell to 84.5 in January, the lowest since 2014. This drop indicates negative views on current conditions and future expectations, which may suggest a slowdown in the labor market. These issues are putting pressure on the US Dollar, causing the US Dollar Index to dip below 97.00 amidst political concerns and discussions about the Federal Reserve’s leadership. The table below shows how the New Zealand Dollar has performed against major currencies, highlighting its notable gain against the US Dollar. The chart compares percentage changes against other currencies with the New Zealand Dollar as the base. At the end of 2025, the New Zealand Dollar significantly strengthened against a weakening US Dollar. Key factors included New Zealand’s inflation reaching 3.1% in the fourth quarter, leading markets to expect interest rate hikes from the Reserve Bank of New Zealand (RBNZ). This trend continues to shape our strategy as we move into February 2026. The RBNZ’s statement in January has reinforced this outlook, clearly stating that inflation remains “uncomfortably high” and that further policy tightening may be needed. Currently, interest rate swaps suggest a 70% chance of a 25 basis point hike at the RBNZ’s meeting in March 2026. This creates a strong foundation for the Kiwi Dollar that we must consider.

Impact on the US Dollar and Future Strategy

Conversely, the weakness of the US Dollar that began in late 2025 has continued into the new year. The January 2026 Non-Farm Payrolls report indicated a job creation of only 95,000, falling short of forecasts and confirming the labor market slowdown we’ve been monitoring. This weak data supports expectations that the Federal Reserve may start cutting rates by the third quarter of this year. With this clear difference in central bank policies, we should explore strategies that profit from a rising NZD/USD. Buying NZD/USD call options with expirations in April and May 2026 allows us to benefit from the expected RBNZ rate hike while limiting potential losses. This way, we can remain bullish through the next crucial central bank meetings. However, we must keep an eye on China’s economic situation, which is showing more signs of stress. The industrial profit figures for the entire year of 2025 confirmed a 5% year-over-year contraction, impacting sentiment for commodity currencies. This poses a primary risk to our long NZD positions, as a significant downturn in New Zealand’s largest trading partner could limit the Kiwi’s growth. The US political environment from last year, including debates on the Federal Reserve and government funding, has stabilized after the budget resolution was passed. This lessens a key source of unusual weakness in the US Dollar but shifts focus back to the worsening economic data. Therefore, we expect the NZD/USD to follow an upward trend in the coming weeks. Create your live VT Markets account and start trading now.

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