The NZD/USD pair fell to about 0.5755 early Monday in Europe. This drop follows a US military operation in Venezuela, resulting in the capture of President Nicolas Maduro, which boosts the US Dollar as a safe-haven currency. More updates are coming, including the ISM Manufacturing PMI data and the December US jobs report. The US strike against Venezuela has increased tensions, likely supporting the US Dollar and putting pressure on the NZD/USD pairing.

Federal Reserve’s Independence

The independence of the Federal Reserve is a concern, as it could limit the rise of the US Dollar. Traders are waiting to hear who President Trump will choose as the next Fed Chair, since Jerome Powell’s term ends in May. The Reserve Bank of New Zealand’s hawkish approach may help the NZD. The RBNZ plans to keep the Official Cash Rate at 2.25% until mid-2027 if the economy meets expectations. The US Dollar is the most traded currency worldwide, accounting for over 88% of global foreign exchange transactions. Decisions made by the Federal Reserve, such as interest rate changes and strategies like quantitative easing and tightening, influence the Dollar’s value. Related articles discuss movements in other currency pairs and how geopolitical events affect markets. Trading in open markets carries risks, and FXStreet offers information but not personal investment advice.

Geopolitical Impact on Currency Markets

Following the recent US military action in Venezuela, there’s a noticeable flight-to-safety trend that is boosting the US Dollar. This geopolitical incident caused Brent crude oil prices to rise over 4%, reaching nearly $95 per barrel. This reaction is similar to market responses observed during past conflicts. Consequently, the NZD/USD pair faces downward pressure. For derivative traders, this rise in uncertainty makes short-term options appealing. Investing in put options on the NZD/USD or call options on the US Dollar Index (DXY) could be a smart way to hedge or speculate on further developments. The VIX, a measure of market fear, has already climbed above 20 for the first time since October 2025, indicating that volatility is likely to remain high. However, we must also consider the uncertainty surrounding the Federal Reserve. President Trump is about to announce a new Fed Chair, and there is speculation that he will choose someone supportive of lower interest rates. This is reflected in Fed funds futures, showing a 60% chance of a rate cut by June 2026, a sharp rise from 35% last month. Meanwhile, the Kiwi dollar has strong support from its central bank. The RBNZ’s hawkish stance is backed by New Zealand’s Q4 2025 inflation data, which was stubbornly high at 3.1%, justifying the current interest rates. This creates a significant tug-of-war for the NZD/USD pair. With opposing forces from geopolitics and central bank policies, this situation is ideal for strategies focused on volatility. We are considering options straddles or strangles on NZD/USD, which would benefit from a significant price change in either direction as one of these narratives eventually prevails. The upcoming US jobs report on Friday will be a crucial data point that could end the current stalemate. Create your live VT Markets account and start trading now.

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