The New Zealand Dollar increased on Wednesday, breaking through the resistance level of 0.5970 and moving towards 0.6000. This rise is due to a greater appetite for risk and a weaker US Dollar. It follows moderate US inflation figures that have raised expectations for a Federal Reserve interest rate cut in September, aimed at supporting a slowing labor market. The chances of a 25 basis point rate cut next month have risen to 95%, up from 85% before the recent US Consumer Price Index (CPI) release. The July CPI data showed annual inflation steady at 2.7%, rather than rising to the expected 2.8%. Core inflation ticked up slightly to 3.1% from June’s 2.9%.

Fed Officials Speak

Today’s agenda is light, with speeches from Fed officials Austan Goolsbee and Raphael Bostic. Both have recently shared dovish views that likely won’t support the USD, while benefiting the NZD, especially with the US-China trade truce extended for 90 days. Inflation measures how much the prices of a basket of goods have increased over time, which is crucial for central banks. The Consumer Price Index (CPI) tracks these price changes, while core CPI excludes fluctuating food and fuel prices. Inflation influences currency value as central banks adjust interest rates accordingly. The New Zealand Dollar is gaining strength as many in the market believe the US Federal Reserve will lower interest rates next month. The rise above the 0.5970 resistance level is important, making the key 0.6000 level a focal point. This movement is mainly due to a weakening US Dollar as traders expect a looser monetary policy. The case for a US rate cut is becoming increasingly clear, especially when we consider recent data from August 2025. The July Non-Farm Payrolls report revealed job growth of just 150,000, falling short of the 180,000 expected. This confirms the trends of a softening labor market, and coupled with steady US inflation, gives the Fed a solid reason to act in September.

Policy Divergence Benefits NZD

In contrast, the Reserve Bank of New Zealand is in a different situation, giving the Kiwi dollar a boost. The RBNZ kept its Official Cash Rate steady at 5.25% during its last meeting, noting that domestic inflation pressures remain high. This divergence in policy, where the US is easing while New Zealand stands firm, makes holding the NZD more appealing. For derivative traders, this presents a clear opportunity in the coming weeks. We suggest buying NZD/USD call options with strike prices just above 0.6000. This strategy allows traders to profit from a rise in the currency pair while capping potential losses to the premium paid for the options. Looking back, strong trends were also seen during the post-pandemic policy shifts of 2022 and 2023, where differences in central bank policies drove the currency markets. The current implied volatility in the options market is reasonable, indicating now may be a good time to position for potential breakthroughs. Additionally, the 90-day extension of the US-China trade truce reduces global risk, which often benefits the NZD. If the pair manages to break and hold above the 0.6000 level, we expect a quicker move towards the 0.6150 area, a key resistance level from late 2024. The upcoming speeches from known dovish figures Goolsbee and Bostic are likely to reinforce market expectations for a rate cut. We should keep a close eye on these events, as they could be the catalyst for the next upward movement. Create your live VT Markets account and start trading now.

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