NZD/USD rose for a third straight day and traded near 0.6000 in Asian hours on Thursday. The pair moved higher as the US Dollar stayed weak, with markets still unsure about White House economic policy. In Tuesday’s State of the Union address, President Donald Trump said the US economy is rebounding. He defended tariffs and criticised the Supreme Court for striking down part of his tariff policy.

Imf Sees Tariffs Adding To Inflation

IMF Managing Director Kristalina Georgieva said US goods inflation has been driven in part by tariffs. She said moving the federal funds rate toward 3.25%–3.50% would be consistent with a return to full employment. She also said public debt will need firm fiscal action to get onto a clear downward path. In New Zealand, the ANZ Business Confidence Index fell to 59.2 in February from 64.1 in January. The ANZ Activity Outlook rose to 52.6 from 51.6. Inflation expectations climbed to 2.93% from 2.77%, the highest since April 2024. RBNZ Governor Anna Breman said inflation is expected to return to the target range in the first quarter of this year. She said progress toward 2% inflation has been uneven. We see the US Dollar’s weakness as a direct result of continued political uncertainty around tariff policy. The latest US inflation data for January 2026 showed prices still rising 3.4% year over year. This supports the view that tariffs are keeping inflation sticky. In this environment, we are reluctant to hold large long positions in the US Dollar.

Policy Divergence And Market Volatility

The IMF’s call to cut the federal funds rate toward 3.25% highlights a key problem: tariffs can push inflation up, while lower rates would add stimulus. With the Fed currently at 4.00%, a move down to that range would be a major dovish shift. This tension is a major source of uncertainty and could keep pressure on the dollar in the weeks ahead. In contrast, New Zealand’s backdrop is more supportive for the Kiwi. Inflation expectations have risen to 2.93%, and official Q4 2025 inflation was 3.1%, still above the central bank’s target. That makes it less likely the Reserve Bank of New Zealand will move quickly toward easier policy. For derivative traders, this policy gap argues for NZD/USD call options. This can position for further upside, with strike prices above 0.6000, such as 0.6050 or 0.6100. This provides upside exposure while keeping risk capped if US policy clarity improves suddenly. Mixed signals may also lift market volatility. A US administration leaning toward tariffs, alongside the possibility that the Federal Reserve may need to cut rates, could create larger swings in NZD/USD. Strategies that benefit from higher implied volatility may also work well. We saw a similar setup in 2022–2023. Currencies backed by more aggressive, inflation-fighting central banks tended to outperform those where policy direction was less clear. History shows rate differentials can be a powerful driver in FX. This strengthens our view that the Kiwi is well placed to gain against the US Dollar. Create your live VT Markets account and start trading now.

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