The NZD/USD pair fell during the Asian session on Wednesday, moving down from recent highs around 0.5850-0.5855. Currently trading at about 0.5825, the decline is minor, with a drop of less than 0.15% for the day. US President Trump’s tariff threats against European allies, linked to tensions over Greenland, have raised concerns about a trade war. This has weakened market sentiment and the Kiwi currency. However, Trump’s comments have also led to a drop in the US Dollar, with the USD Index nearing its lowest level since January 6. This situation suggests we should be cautious before expecting more depreciation of the NZD/USD.

Reserve Bank of New Zealand Policy Outlook

The Reserve Bank of New Zealand recommends waiting for strong selling signals before predicting a peak in prices. Upcoming data releases, including the US PCE Price Index and Q3 GDP on Thursday, as well as New Zealand’s inflation figures on Friday, could affect the NZD/USD pair. In financial markets, “risk-on” refers to a time when investors are willing to take risks, leading to gains in assets like stocks and cryptocurrencies. “Risk-off” describes a time of caution, driving investors toward bonds, gold, and safe currencies like the JPY, CHF, and USD due to their stability. Currently, the NZD/USD pair is trading in a narrow range around 0.6150, which is stronger than the 0.58 level we observed in late 2019. Despite the underlying tensions feeling somewhat similar, a hawkish central bank in New Zealand supports the Kiwi against global uncertainties. This situation makes it challenging to plan straightforward trades in the coming weeks. Reflecting on 2019 and 2020, we recall that the “Sell America” theme was fueled by unpredictable tariff threats. Today, there’s a weaker dollar trend, supported by economic data showing US inflation easing to 2.5% annually. This raises expectations that the Federal Reserve may cut rates before mid-year. In contrast, New Zealand’s inflation remains above 3.5%, leading the RBNZ to take a more assertive approach.

Reserve Bank of New Zealand Hawkish Outlook

The Reserve Bank of New Zealand’s hawkish perspective continues to support the Kiwi, a trend we’ve observed throughout 2025. With the Official Cash Rate at a multi-decade high of 5.5%, the interest rate difference favors the NZD. However, we believe that the peak of the rate hiking cycle has been reached, which might cap any potential gains for the pair unless new factors emerge. Given the current dynamics, the one-month implied volatility for NZD/USD options is relatively low at 9%. This indicates that the market is not expecting significant moves. In this stable environment, strategies like selling strangles could be more effective than buying options in hopes of a breakout. Traders should focus on collecting premiums while the pair remains steady. It’s essential to keep an eye on the upcoming US employment data and New Zealand’s quarterly inflation report. Any weakness in the US labor market or continued inflation in New Zealand would strengthen the narrative of policy divergence between the two countries. These data points are likely to trigger a movement in the pair out of its current range. Create your live VT Markets account and start trading now.

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