NZD/USD traded near 0.6060 on Wednesday, up 0.25% on the day and close to a two-week high. The move came as the US Dollar stayed weak ahead of the US Nonfarm Payrolls (NFP) report.
The US Dollar Index (DXY) hovered near weekly lows as markets increased expectations for Federal Reserve rate cuts this year. Worries about the Fed’s independence also weighed on the currency.
Labor Market Focus
The NFP report was expected to show 70,000 jobs added in January, with the Unemployment Rate unchanged at 4.4%. Traders also watched for comments from several Federal Reserve officials.
Better risk sentiment supported cyclical currencies such as the New Zealand Dollar. This happened even as China’s inflation cooled. CPI was 0.2% YoY in January versus 0.8% ранее, and PPI fell 1.4% YoY, marking a 40th straight monthly decline.
In New Zealand, the Unemployment Rate rose to 5.4% in the fourth quarter of 2025, the highest since 2015. Money markets priced in more than a 60% chance of a rate cut at the Reserve Bank of New Zealand meeting in May.
As we saw last week, the US NFP report confirmed a softer labor market. Jobs rose by 55,000 in January versus expectations of 70,000. This strengthened bets on a Fed rate cut and pushed the US Dollar Index below 102.50. As a result, NZD/USD broke above resistance and is now testing higher levels around 0.6120.
Options Positioning Outlook
For derivative traders, this setup suggests that buying NZD/USD call options may be a way to target more upside, especially if the US Dollar stays weak. Implied volatility has climbed to a three-month high of 11.2%. This shows that traders expect bigger price moves ahead of the March Fed meeting. Open interest has also increased in out-of-the-money calls expiring within the next two months.
The Kiwi also got support from China. Earlier this week, Chinese authorities cut the one-year Loan Prime Rate by 10 basis points. The goal is to fight the deflation pressure seen in January’s CPI data. Since China is New Zealand’s largest trading partner, this pro-growth stance helps the New Zealand Dollar.
Still, the Kiwi faces domestic pressure. Unemployment rose to 5.4% late in 2025. January retail sales fell 0.8%, which strengthened expectations that the RBNZ will cut rates in May. This suggests recent NZD gains are mainly driven by US Dollar weakness, not strong New Zealand fundamentals.
With these mixed forces, traders may prefer bull call spreads on NZD/USD instead of buying calls outright. This approach targets a moderate rise while reducing upfront cost and limiting risk if the RBNZ’s dovish outlook starts to outweigh Fed easing expectations. In similar periods, such as 2019, currencies with weak local fundamentals still rose against the US Dollar during Fed easing cycles, but their gains were often limited.
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