The New Zealand Dollar increased in value after the US Dollar weakened due to disappointing job numbers for July. NZD/USD traded about 0.17% higher, reaching around 0.5900, bouncing back from a low of 0.5856, but it is still on track for a weekly loss. The US Dollar Index, which compares the Dollar to six major currencies, fell from 100.26 to nearly 98.86. The July Nonfarm Payroll report showed only 73,000 new jobs, much lower than the expected 110,000, with previous months’ data being revised down by a total of 258,000 jobs. The Unemployment Rate climbed to 4.2% in July from 4.1% in June, indicating a slowing job market. Wage growth remained steady, with Average Hourly Earnings rising by 0.3% monthly and 3.9% annually. However, the ISM Manufacturing PMI dropped to 48.0, showing further contraction in the sector. Consumer sentiment also declined, as the Michigan Consumer Sentiment Index fell to 61.7, below the expected 62.0. Following the NFP report, the chances of a Federal Reserve rate cut in September surged to 82%, up from 37%, despite cautious comments from Fed officials. The New Zealand Dollar gained strength against the US Dollar and showed mixed results against other major currencies like the EUR, GBP, JPY, CAD, AUD, and CHF. The downturn in the US job market indicates that the strength of the US Dollar is fading. The disappointing July NFP report is significant, reshaping expectations for the Federal Reserve. This appears to mark the start of a new trend, rather than just a one-day fluctuation. For those looking to take advantage of this situation, we recommend positioning for a higher NZD/USD exchange rate. Buying call options on NZD/USD that expire in September 2025 could be beneficial if the pair continues to rise, with risk limited to the premium paid. We view the recent rise above 0.5900 as a crucial sign, aiming for the key level of 0.6000. This situation reminds us of the Fed’s policy change in 2019, when weak economic data led to a shift from rate hikes to cuts. Leading up to the first rate cut in July 2019, the US Dollar Index declined as markets anticipated the move. We expect a similar trend of dollar weakness to unfold ahead of the Fed meeting in September 2025. The market’s pricing supports this view. Current Fed funds futures indicate an 82% chance of a rate cut in September, showing strong consensus. Historically, the CME FedWatch Tool has been a reliable indicator, and when such high probabilities emerge, the Federal Reserve seldom disappoints. Additionally, we must consider the differing policies between central banks. While the Fed is expected to ease, the Reserve Bank of New Zealand is facing a persistent annual inflation rate of 4.4% as of Q2 2025. This suggests the RBNZ will likely slow down on rate cuts, which could strengthen the New Zealand Dollar against the US Dollar. Given the market’s significant reaction, implied volatility in currency options has likely risen. This creates an opportunity for those willing to take a different approach, like selling out-of-the-money put options on the NZD/USD pair. This strategy allows us to earn premium income, betting that the pair is unlikely to reverse its gains and fall significantly before the September meeting.

here to set up a live account on VT Markets now