The US Dollar (USD) is becoming stronger compared to commodity currencies like the New Zealand and Australian Dollars. Still, the DXY index hasn’t changed much because the Euro, Swiss Franc, and Japanese Yen are stable against the USD. Recent remarks from the Reserve Bank of Australia’s Deputy Governor have weakened the Australian Dollar, which has also impacted the New Zealand Dollar. Additionally, President Trump’s economic actions have affected global stocks, making the USD more appealing. US economic data has been mixed, showing weak ADP numbers alongside strong ISM Services data. However, the demand for bonds indicates that investors are not looking for safe havens right now.

Fed Outlook and Rate Cut Expectations

Fed Governor Miran mentioned that the economy may need more than 100 basis points in rate cuts this year. Even with strong ISM data, this cautious view hasn’t changed. Current market swaps reflect moderate expectations for rate cuts. The DXY index is capped below 100, and the USD is sensitive to any news that might change Federal Reserve policy expectations. The US Dollar Index (DXY) looks stuck, having difficulty surpassing the upper 98 range. While it has shown strength against commodity currencies, the Euro and Yen remain stable, creating a stalemate. The DXY has been trading between 97.80 and 98.65 for the past two weeks, indicating indecision among traders ahead of key data. The best opportunities seem to be against the Australian and New Zealand dollars. The Reserve Bank of Australia’s indication that it is not in a hurry to tighten policy has caused the AUD/USD to drop over 1.2% this week. This follows the RBA’s dovish decision last November 2025, highlighting a trend of the Australian Dollar’s underperformance. There is a notable gap between the Federal Reserve’s cautious rhetoric and market expectations. Fed Governor Miran is advocating for over 100 basis points of cuts this year, yet futures are only suggesting 59 basis points of easing. Current data from the CME Group shows less than a 50% chance of a rate cut by the March meeting, a situation that could change with tomorrow’s payrolls report.

Market Strategy and Historical Shifts

This gap indicates that buying put options on the DXY or call options on pairs like EUR/USD could be a wise strategy for the upcoming weeks. These positions could serve as a hedge or a direct bet on the market adjusting to a more aggressive Fed easing approach. Any signs of weakness in upcoming US employment or inflation data might lead to a quick decline in the dollar. It’s essential to remember how fast the policy environment changed throughout 2025, shifting from a hawkish stance to conversations about easing. After an aggressive rate hike period, the central bank has shown it can change direction decisively. This history adds credibility to the belief that the Fed could cut rates more than the market currently expects. The current interest in the dollar seems hesitant, driven more by weak global stocks than by a true flight to safety. The weakness in government bonds suggests a lack of strong demand for havens. With the VIX index hovering just above 15, the market isn’t displaying the level of widespread fear that would support a significant dollar rally. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now