NZD/USD rose for a second straight day and traded near 0.5990 during European hours on Wednesday, moving closer to 0.6000. The pair climbed after the US Dollar weakened following President Donald Trump’s first State of the Union address of his second term. Trump said his administration had delivered a “turnaround for the ages,” pointing to lower inflation and stronger economic performance. He also highlighted actions on illegal immigration and fentanyl. He added that higher tariffs could be placed on countries that “play games” with trade agreements, after the Supreme Court struck down several global levies.

Fed Policy Outlook

NZD/USD gains may be limited if the US Dollar finds support from expectations that the Federal Reserve will keep rates unchanged for longer. Boston Fed President Susan Collins said it may be appropriate to hold rates at the current level for some time. Richmond Fed President Thomas Barkin said policy is “well-positioned” to manage risks. Last week, the Reserve Bank of New Zealand kept the Official Cash Rate at 2.25% and said policy would remain accommodative as inflation moves toward the middle of its target band. Traders see a low chance of the first rate hike happening before October or December. The latest push in NZD/USD toward 0.6000 looks like a short-term political reaction, not a lasting change in fundamentals. We view this rally as a chance to position for a pullback. The US Dollar’s brief weakness after the State of the Union speech may be hiding the factors that still support the currency. Our bearish view is mainly based on the wide gap between the two central banks’ policies. The Federal Reserve has kept the Fed Funds Rate at 5.25%–5.50% since mid-2023 to fight inflation, which averaged above 3% through 2025. By contrast, the RBNZ is holding the Official Cash Rate at a much lower 2.25%. This gives the US Dollar a clear yield advantage. Looking back at 2025 data, the US economy stayed resilient, while New Zealand struggled with a slow recovery after a short recession. New Zealand inflation has eased to 2.8% year over year, which is within the RBNZ target band. That gives the RBNZ little reason to raise rates soon. In the US, the Fed remains alert to the risk that inflation could pick up again.

External Drivers And Trade Headwinds

External forces are also pressuring the New Zealand Dollar. Growth in China, New Zealand’s largest trading partner, has remained slow. This has reduced demand for key exports. In addition, the Global Dairy Trade Price Index—a key measure of New Zealand’s export income—has fallen 7% over the past six months, creating another headwind for the Kiwi. Against this backdrop, the rally toward 0.6000 may offer an attractive level to open bearish positions. Derivatives traders could consider buying NZD/USD put options to benefit from a decline while limiting upside risk. Another approach is to build short positions using NZD futures contracts, based on the view that the pair could revisit last year’s lows. Create your live VT Markets account and start trading now.

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