**NZD/USD Pair Outlook** The US Dollar Index is slightly down at about 98.60, allowing the Kiwi to gain strength despite confidence in no Federal Reserve rate cut in January. The NZD/USD pair is above the 20-day EMA at 0.5757, indicating a short-term upward trend. If it rises above the December 11 high of 0.5832, that could suggest more gains. However, if it falls below 0.5735, it might signal a decline. Currently, the market mood shows the NZD/USD pair making gains, boosted by strong Q3 GDP data released last Wednesday. Nevertheless, this strength is misleading because market expectations for a future interest rate hike by the Reserve Bank of New Zealand (RBNZ) are declining. As a result, good domestic news is not translating into positive policy expectations. **RBNZ and Inflation Challenge** The market’s uncertainty seems to arise from a larger inflation issue, which continues to challenge the RBNZ. Looking back at Q3 2025, New Zealand’s Consumer Price Index (CPI) was still high at 5.6%, far beyond the central bank’s target range. Although recent GDP growth is positive, it may not be enough for the RBNZ to tighten policy, given the already high inflation. On the other hand, the slight weakness in the US Dollar appears to be a correction rather than a change in trend. The latest US Non-Farm Payrolls report showed a strong labor market with 199,000 new jobs, giving the Federal Reserve little reason to consider cutting rates soon. Since US inflation remains stubbornly above the 2% target, we expect the Fed to keep rates steady through their January 2026 meeting. **US Dollar Market Conditions** The competition between a strong New Zealand economy and a firm Federal Reserve suggests a range-bound market, especially as trading volumes decrease heading into the new year. A strategy for selling volatility, like a short strangle, could be useful, setting the upper strike at the recent high around 0.5832 and the lower strike at 0.5735. This method benefits from the pair staying between these crucial technical levels. For those expecting a directional move, buying options can be a low-risk way to prepare for a breakout. If the pair makes a sustained move above 0.5832—potentially driven by positive risk sentiment that boosted the S&P 500 over 4% this month—call options become appealing. On the other hand, a drop below the 0.5735 support could indicate renewed US Dollar strength, making put options more favorable. Create your live VT Markets account and start trading now.

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