The NZD/USD pair rose slightly to around 0.5800 during Tuesday’s Asian session. This movement occurred after US manufacturing activity fell more than expected in December. The US Manufacturing PMI dropped to 47.9, lower than the expected 48.3, marking a ten-month decline. Geopolitical tensions may boost safe-haven currencies like the US Dollar, which could limit any further gains for the NZD/USD pair. Additionally, growing concerns about the Federal Reserve’s independence could put downward pressure on the USD. Traders are looking at the US employment report to guide the Federal Reserve’s decisions on interest rates.

Reserve Bank Of New Zealand And Economic Factors

The Reserve Bank of New Zealand (RBNZ) aims for inflation between 1% and 3% and adjusts interest rates accordingly. The New Zealand Dollar is significantly influenced by high dairy prices and China’s economic performance, as New Zealand relies heavily on them. The New Zealand Dollar usually performs well during positive market conditions but weakens when there’s economic uncertainty. Key economic data, such as growth and employment figures, are vital for determining the NZD’s value. This data can also affect RBNZ policies and draw foreign investments. During unstable markets, investors often seek safer assets, which can negatively impact the NZD. The recent US manufacturing data, indicating a continued contraction for the tenth month, is the primary reason for the US Dollar’s weakness. This trend has persisted throughout 2025, with the ISM PMI often failing to remain above the 50-point level. This may be a short-term advantage for the NZD/USD pair, making short-dated call options appealing if prices rise above 0.5800.

US Employment Report And Federal Reserve Concerns

Attention is now focused on this Friday’s US employment report for December 2025, which may cause significant market movement. A poor jobs report could raise recession fears and heighten expectations for Fed rate cuts. Conversely, a strong report, similar to December 2024’s, might quickly reverse the dollar’s decline. Buying straddles on the NZD/USD pair before this announcement could be a smart way to profit from potential price swings. Uncertainty about who will be the next Federal Reserve Chair is another factor likely to pressure the dollar in the coming months. With Jerome Powell’s term ending in May, if a new nominee supports significantly lower interest rates, it might create a long-term bearish outlook for the US Dollar. We find value in positioning for this shift by considering longer-dated call options on NZD/USD that expire in the second or third quarter of this year. However, the geopolitical situation in Venezuela brings a conflicting dynamic that could support the US Dollar. Increased tensions often lead to safety-seeking behavior, which benefits the dollar and may limit any rally in the NZD/USD. This interplay between weak economic data and geopolitical risks suggests that implied volatility will stay high, making options pricier but also more relevant. On the New Zealand front, there are some encouraging signs that support the strength of the Kiwi. Recent Caixin PMI figures from China, released last week, showed a slight expansion at 50.8, which is positive news for New Zealand’s biggest trading partner. Furthermore, the latest Global Dairy Trade auction revealed a 1.2% increase in prices, strengthening the fundamental support for the currency. Create your live VT Markets account and start trading now.

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