NZD/USD rose for a third day and traded near 0.6000 in Asian hours on Thursday. The pair moved up as the US Dollar stayed weak amid uncertainty on White House economic policy.
In Tuesday’s State of the Union address, President Donald Trump said the US economy is rebounding. He defended tariffs and criticised the Supreme Court for striking down part of his tariff policy.
Imf Sees Tariffs Adding To Inflation
IMF Managing Director Kristalina Georgieva said US goods inflation has been partly driven by tariffs. She said moving the federal funds rate towards 3.25%–3.50% would fit with a return to full employment, and said public debt needs firm fiscal action to move onto a downward path.
In New Zealand, the ANZ Business Confidence Index fell to 59.2 in February from 64.1 in January. The ANZ Activity Outlook rose to 52.6 from 51.6, while inflation expectations increased to 2.93% from 2.77%, the highest since April 2024.
RBNZ Governor Anna Breman said inflation is expected to return to the target range in the first quarter of this year. She said the move back towards 2% inflation has been uneven.
We see the US Dollar’s weakness as a direct result of ongoing political uncertainty regarding tariff policy. The most recent US inflation data from January 2026 showed a persistent 3.4% year-over-year increase, supporting the idea that tariffs are keeping prices elevated. This environment makes us hesitant to hold significant long positions in the US Dollar.
Policy Divergence And Market Volatility
The International Monetary Fund’s suggestion to cut the federal funds rate toward 3.25% creates a clear conflict with the inflationary pressure from tariffs. With the current Fed rate at 4.00%, such a cut would be a significant dovish shift. This policy divergence is a primary source of uncertainty that should continue to weigh on the dollar in the coming weeks.
Conversely, the situation in New Zealand points toward strength for the Kiwi dollar. The rise in inflation expectations to 2.93% is a critical signal, especially after the official Q4 2025 inflation data came in at 3.1%, still well above the central bank’s target. This makes it highly unlikely the Reserve Bank of New Zealand will join any global shift toward easing monetary policy soon.
For derivative traders, this divergence suggests buying NZD/USD call options is a sensible strategy. We can use this to position for a potential move higher, targeting strike prices above the current 0.6000 level, such as 0.6050 or 0.6100. This approach offers exposure to the upside while clearly defining our maximum risk if US policy suddenly becomes more certain.
The conflicting economic signals are also likely to increase market volatility. The friction between a US administration favoring tariffs and a potential need for the Federal Reserve to cut rates could lead to larger price swings. Therefore, strategies that profit from a rise in implied volatility on the NZD/USD pair could also be effective.
We remember seeing a similar pattern when we looked back at the 2022-2023 period, where currencies with more aggressive, inflation-fighting central banks outperformed those where policy was less clear. The historical data from that time shows that rate differentials are a powerful driver of currency pairs. This precedent strengthens our view that the Kiwi is positioned to appreciate against the US Dollar.
