NZD/USD traded near 0.6060 on Wednesday, up 0.25% on the day and at a near two-week high. The move came as the US Dollar stayed weak ahead of the US Nonfarm Payrolls (NFP) report.
The US Dollar Index (DXY) held near weekly lows as markets increased expectations for Federal Reserve rate cuts this year. Concern about the Fed’s independence also weighed on the currency.
Labor Market Focus
The NFP report was expected to show 70,000 jobs added in January, with the Unemployment Rate unchanged at 4.4%. Traders were also watching for comments from several Federal Reserve officials.
Improved risk sentiment supported cyclical currencies such as the New Zealand Dollar. This occurred even as China’s inflation data cooled, with CPI at 0.2% YoY in January versus 0.8% previously, and PPI down 1.4% YoY for a 40th straight monthly decline.
In New Zealand, the Unemployment Rate rose to 5.4% in the fourth quarter of 2025, the highest since 2015. Money markets priced in over a 60% chance of a rate cut at the May Reserve Bank of New Zealand meeting.
As we saw last week, the US Nonfarm Payrolls report confirmed a cooling labor market, printing at 55,000 jobs for January against expectations of 70,000. This solidified bets on a Federal Reserve rate cut and sent the US Dollar Index tumbling below the 102.50 level. Consequently, NZD/USD broke through resistance and is now testing higher levels around 0.6120.
Options Positioning Outlook
For derivative traders, this environment suggests that buying call options on NZD/USD could be a viable strategy to capture further upside potential driven by US dollar weakness. Implied volatility has picked up to a three-month high of 11.2%, reflecting the market’s anticipation of larger price swings as we approach the March Fed meeting. We are seeing a notable increase in open interest for out-of-the-money calls expiring in the next two months.
Adding to the Kiwi’s strength, Chinese authorities followed through on stimulus expectations earlier this week by cutting the one-year Loan Prime Rate by 10 basis points. This move is designed to combat the deflationary pressures we saw in their January CPI data. This pro-growth stance from New Zealand’s largest trading partner provides a supportive backdrop for its currency.
However, we must temper our bullishness on the Kiwi due to its domestic headwinds, as highlighted by the rise in unemployment to 5.4% late in 2025. Just yesterday, January’s retail sales figures showed a contraction of 0.8%, further cementing expectations that the Reserve Bank of New Zealand will cut rates in May. This means any NZD strength is primarily a story of US Dollar weakness, not standalone Kiwi momentum.
Given these conflicting forces, traders might consider using bull call spreads on NZD/USD instead of buying calls outright. This strategy allows one to profit from a moderate rise in the currency pair while limiting the upfront cost and risk if the RBNZ’s dovish stance suddenly outweighs Fed easing bets. Looking back at similar dynamics in 2019, currencies with weak domestic fundamentals still rallied against the dollar during Fed easing cycles, but their gains were often capped compared to others.
