The NZD/USD pair is showing modest gains, trading at approximately 0.5805 during the early Asian session on Tuesday. These gains come as the market anticipates future interest rate cuts in the US, placing pressure on the US Dollar. The upcoming FOMC Minutes release is a key focus this week, alongside lower trading volumes due to the New Year holiday. The US Federal Reserve recently announced its third interest rate cut of the year, lowering the federal funds rate to a target range of 3.50% – 3.75%. Jerome Powell stated that future policies will be based on economic data, particularly inflation and employment trends. According to the CME FedWatch tool, there is a 16.1% chance of another rate cut at the January meeting.

Pending Home Sales and RBNZ Decisions

In the US, Pending Home Sales increased by 3.3% in November, exceeding the expected 1.0% growth. Meanwhile, in New Zealand, the RBNZ concluded its cycle of rate cuts, which may strengthen the NZD against the USD. The RBNZ lowered the Official Cash Rate to 2.25% in November, suggesting that future decisions will rely on economic data. Several factors affect the NZD, such as the policies of New Zealand’s central bank, the country’s economic health, China’s economic performance, and dairy prices. These elements, alongside market sentiment, can influence the NZD’s strength against the USD. With the NZD/USD pair trading around 0.5805, we see a possible upward trend for the pair as we move into the new year. The primary driver is the expectation that the US Federal Reserve will continue to cut interest rates in 2026, which would add further pressure on the US Dollar. Trading volumes are likely to remain low until after the New Year holiday, potentially leading to sharper price movements. The Fed’s shift to a more dovish approach in late 2025 comes after an aggressive rate-hiking phase in 2022 and 2023. The latest Core PCE inflation data from November 2025 showed a year-over-year increase of 2.8%, supporting the case for additional easing. We will monitor the FOMC minutes closely to see how many members support this easing approach.

Economic Indicators and Market Outlook

Despite strong US pending home sales in November 2025, the overall economic situation leans toward a weaker dollar. The November 2025 Non-Farm Payrolls report revealed job growth slowing to 150,000, and the unemployment rate rose to 4.1%. This combination of falling inflation and a weakening labor market provides the Fed with a clear path to continue lowering rates. Conversely, it appears the Reserve Bank of New Zealand may pause its rate-cutting cycle for now. New Zealand’s inflation remains relatively high, with Q3 2025 CPI data showing a rate of 3.5%, well above the RBNZ’s target. This difference in interest rates, where US rates are declining while New Zealand’s may stabilize, is supportive for the Kiwi dollar. We also need to consider external influences, particularly from China, which significantly impacts the Kiwi. The recent Caixin Manufacturing PMI for December 2025 was 50.1, indicating sluggish demand from New Zealand’s largest trading partner. However, positive developments in the dairy sector are encouraging, as the Global Dairy Trade index rose by 2.5% in the final auction of 2025. Given this context, we could position ourselves for a potential rise in the NZD/USD pair in the coming weeks. Buying call options may be a wise strategy, allowing for upside potential while limiting downside risks in this holiday market. The FOMC minutes will be crucial, as they could either confirm or challenge the market’s dovish expectations for 2026. Create your live VT Markets account and start trading now.

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