The US Dollar Bounces Back

The NZD/USD pair has ended an eight-day winning streak, pulling back from a six-month high. The US Dollar is recovering as the market awaits the Federal Reserve’s decision on monetary policy. The pair has dropped to about 0.6030, down 0.20% for the day, after reaching 0.6051. The Federal Reserve is likely to keep interest rates between 3.50% and 3.75% after previous cuts. The US Dollar is regaining some ground lost in recent sessions. Ongoing talks about fiscal and trade policies, along with possible currency intervention, are contributing to these shifts. New Zealand’s better economic fundamentals are helping support the NZD/USD pair. Annual inflation rose to 3.1% in the fourth quarter, hinting at a possible rate increase by the Reserve Bank of New Zealand later this year. Attention now turns to New Zealand’s trade balance data from December and China’s activity indicators. These factors matter, as China is a crucial trading partner for New Zealand. The table shows that the New Zealand Dollar has remained the strongest against the Swiss Franc, indicating the percentage changes of major currencies against each other, with the Kiwi compared to the US Dollar and others.

Strengthening Kiwi and the “Sell America” Trend

Looking back at the trends from 2025, the New Zealand dollar has shown solid strength, supported by strong domestic inflation and expectations for a more aggressive Reserve Bank of New Zealand. This momentum paused as the US Dollar found temporary support before the Federal Reserve’s decisions late last year. The different paths of the central banks have now become a key theme for the first half of 2026. Recent data strengthens the case for a stronger Kiwi. Statistics New Zealand reported that inflation for the fourth quarter of 2025 was high at 4.7%, well above the RBNZ’s target range. This has led the market to believe that the RBNZ will keep its Official Cash Rate steady at 5.5% for a long time, with some even thinking another hike could happen. On the flip side, the “Sell America” story from 2025 remains relevant. US inflation hit 3.4% in December 2025. Although the Federal Reserve has paused since last year’s three rate cuts, futures markets are now suggesting a high chance of more cuts by mid-2026. This expectation limits pressure on the US Dollar and hinders its ability to rally. With this growing gap in policies, traders might consider positions that benefit from further NZD/USD growth in the coming weeks. Buying call options on the NZD/USD is one way to take advantage of potential gains while keeping risk to the premium paid. For those who have a moderately optimistic view, setting up bull call spreads can reduce initial costs. It’s important to remember that past situations with clear differences in monetary policy, like in 2014 when the Fed was getting ready to hike while others were easing, often led to lasting trends in currency pairs. The biggest risk to this idea is any surprise change in Fed communication or a surprisingly strong US jobs report, which could lead to a sharp, short-term reversal. Using options can help manage risk around such unpredictable data releases. Create your live VT Markets account and start trading now.

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