The New Zealand Dollar (NZD) has risen in value for five straight days. This increase is supported by a weaker US Dollar (USD) and backing from the Reserve Bank of New Zealand (RBNZ). Currently, NZD/USD is around 0.5820, an increase of 0.10%, benefiting from the Federal Reserve’s cautious stance and recent rate cuts. The USD fell further after the Federal Reserve cut its policy rate by 25 basis points. Jerome Powell, the Fed chair, pointed out risks in the job market. This expectation of more rate cuts in 2026 put pressure on the USD and helped risk-sensitive currencies like the NZD.

RBNZ’s Strong Position

The RBNZ’s strong position, after lowering rates to a three-year low in November, stands in sharp contrast to the Fed’s cautious approach. This difference has helped keep NZD/USD on the rise. Investors are watching New Zealand’s Business NZ Performance of Manufacturing Index (PMI) for insights into the economy. In the US, labor market data shows signs of cooling, with Initial Jobless Claims rising to 236,000 for the week ending December 6. This aligns with the Fed’s view that the job market is weakening, influencing their decision to cut rates. The US Dollar Index is moving lower, close to 98.25, affected by weak economic data and policy perspectives. Speculation about Jerome Powell’s potential successor, possibly Kevin Hassett, who is viewed as more dovish, adds more pressure to the USD.

Differences in Federal Reserve and RBNZ Policies

The key difference between the Federal Reserve and the Reserve Bank of New Zealand is crucial right now. The Fed is cutting rates because of a slowing job market, while the RBNZ suggests it won’t need to cut rates further. This indicates that we should expect continued strength in the NZD/USD into early 2026. We’ve seen this scenario before; in late 2023, increases in US jobless claims signaled a trend toward weakness for the dollar. The recent rise in claims to 236,000 supports the Fed’s cautious stance and strengthens expectations for more rate cuts next year. This underlying weakness in the US economy makes shorting the dollar a smart move. On the other hand, the RBNZ faces persistent inflation that has stayed above its target for several years. This situation justifies their strong position. Even after the cut in November 2025, New Zealand’s Official Cash Rate offers a much better yield than US rates, attracting investment toward the Kiwi. We should monitor the upcoming Business NZ manufacturing index to ensure the local economy stays strong. Considering this outlook, we should buy NZD/USD call options that expire in late January or February 2026. This approach allows us to profit from expected gains while limiting our potential losses to the premium we pay. Choosing strike prices slightly above the current 0.5820 level, like 0.5850, is a smart entry point. For those looking for a more cautious trade, we could use a bull call spread, which involves buying one call option and selling another at a higher strike price. This strategy reduces the initial cost of the trade and aims to profit from a moderate rise in the currency pair. Selling out-of-the-money puts below the critical 0.5800 support level is also a good option to collect premiums, based on the belief that the uptrend will continue. Create your live VT Markets account and start trading now.

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