The US Dollar is weakening as political issues surrounding the Federal Reserve come back into focus. Fed Chair Jerome Powell is facing potential criminal charges related to renovations, raising worries about political pressure on monetary policy. The NZD/USD is rising, now around 0.5770, up 0.60%. Traders are paying close attention to the upcoming US Consumer Price Index report for further guidance. The tension between the US government and the Federal Reserve continues to put downward pressure on the USD.

US Monetary Expectations

Expectations of more US monetary easing are contributing to the dollar’s decline. Job creation was only 50,000 in December, falling short of predictions. The unemployment rate dipped slightly to 4.4%, fueling expectations for rate cuts. On the other hand, the Reserve Bank of New Zealand is taking a stricter approach, which supports the NZD. It is expected that New Zealand will hold off on rate hikes until late 2026 or early 2027. Geopolitical tensions in the Middle East also bring risks that could affect demand for safe-haven currencies. Despite global uncertainty, the New Zealand Dollar remains strong against major currencies, especially the Japanese Yen. The NZD has risen by 0.28% against the Euro (EUR) and 0.59% against other major currencies, showing daily changes in the currency’s strength. Looking back to late 2025, the US Dollar weakened significantly due to concerns about the Federal Reserve’s independence. This trend has continued, pushing the NZD/USD from 0.5770 to its current range around 0.6250. The political pressure on the Fed from last year has left a lasting negative impact on the dollar.

Inflation and Jobs Data Impact

The case for rate cuts by the Fed is becoming more complicated. The latest Consumer Price Index (CPI) data from December 2025 showed inflation cooling to 3.1%, suggesting that easing may be on the way. However, the most recent jobs report revealed stronger-than-expected growth, with 199,000 new nonfarm payrolls, indicating the economy isn’t slowing as quickly as anticipated. Conversely, the Reserve Bank of New Zealand has a strong rationale for its current position. New Zealand’s inflation is still high at 4.7%, leaving no reason to lower its official cash rate, which stands at 5.50%. This clear difference in policy between a potentially easing Fed and a steady RBNZ continues to support the strength of the Kiwi dollar. The ongoing policy divergence suggests that the upward trend in NZD/USD could continue. However, the recent strong US jobs data brings some uncertainty. In the coming weeks, we might consider using options to trade this outlook, such as buying NZD/USD call options. This strategy would allow us to take advantage of potential gains while limiting downside risk. We should also remain alert to geopolitical risks present last year. A serious escalation in global conflicts could lead to a surge in safe-haven assets, benefiting the US Dollar. Such a scenario would likely cause a sharp drop in NZD/USD and poses the main risk to our otherwise positive outlook. Create your live VT Markets account and start trading now.

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