NZD/USD is rising as the US Dollar weakens following cooling US labour data, leading to expectations of dovish Federal Reserve moves. Markets anticipate two Fed rate cuts this year, one in June and possibly another in September, while the unemployment rise in New Zealand has pushed back expectations for imminent policy tightening.
NZD/USD targets 0.6000, trading around 0.5980 as the market awaits the Michigan Consumer Sentiment Index release. Despite gains, the pair faces challenges from the New Zealand Dollar’s struggles due to diminished expectations for a forthcoming rate hike by the Reserve Bank of New Zealand.
Us Labor Data Reports
The US Department of Labor reported an increase in Initial Jobless Claims to 231,000, exceeding estimates. Additionally, private payrolls rose by just 22,000 in January, below the forecast of 48,000.
In New Zealand, a mixed labour market report highlighted an unexpected rise in unemployment, pushing back rate hike expectations. Traders are not fully pricing in a rate increase until October, with a 70% chance of a September move.
The Reserve Bank of New Zealand aims for inflation between 1% and 3% and influences the currency by adjusting interest rates. The New Zealand Dollar’s value is affected by the Chinese economy, dairy prices, and overall risk sentiment.
Looking back at the sentiment in early 2025, we recall the market was anticipating two Federal Reserve rate cuts. In reality, the Fed only delivered a single 25-basis-point cut late in November 2025 as services inflation proved unexpectedly stubborn throughout the year. This divergence between expectation and reality has set the stage for our current positioning.
Current Market Trends
The focus now is on the weakening US labor market, a trend that accelerated in the final quarter of 2025. January’s Non-Farm Payroll data, which came in at a modest 168,000, and initial jobless claims now consistently printing above 240,000, confirm this slowdown. With Core PCE inflation finally dipping to 2.8% year-over-year, we see a much clearer path for Fed easing in the coming months, likely starting in May.
On the other side of the pair, the Reserve Bank of New Zealand has remained on hold since Governor Breman’s first meeting a year ago. The domestic picture in New Zealand has softened considerably, with Q4 2025 unemployment rising to 4.4% and GDP growth turning negative. Consequently, the market is no longer discussing RBNZ hikes but is now pricing in a 50% chance of a rate cut by August.
This policy divergence, where the Fed is more certain to cut sooner than the RBNZ, should theoretically support NZD/USD. However, crucial external factors are capping the Kiwi’s potential. China’s economic recovery stalled in late 2025, and the Global Dairy Trade Price Index has fallen by over 6% in the last three months, directly impacting New Zealand’s export revenue.
Given this backdrop, we see limited upside for NZD/USD beyond the 0.6150 level. A viable strategy for the coming weeks involves selling call options with strike prices at or above that level to collect premium from expected range-bound activity. For those anticipating a sharp move driven by upcoming inflation data, purchasing a volatility position like a long straddle could prove effective.
