Insights 
VT 
The New Zealand Dollar rose after the US Dollar weakened due to disappointing July Nonfarm Payroll data. Trading nearly 0.17% higher at around 0.5900, NZD/USD rebounded from a low of 0.5856 but is still set for a weekly loss.
The US Dollar Index, which measures the Dollar against six major currencies, dropped from 100.26 to near 98.86. The July NFP report showed only 73,000 jobs added, well below the expected 110,000, with previous months’ data revised down by 258,000 jobs combined.
Economic Indicators
The Unemployment Rate rose to 4.2% in July from 4.1% in June, reflecting a cooling labour market. Wage growth was steady, with Average Hourly Earnings up 0.3% monthly and 3.9% annually. However, the ISM Manufacturing PMI fell to 48.0, indicating further contraction.
Consumer sentiment softened as the Michigan Consumer Sentiment Index dropped to 61.7, below the projected 62.0. Market expectations for a Federal Reserve rate cut in September increased to 82% from 37% before the NFP release, despite cautious statements from Fed officials.
The New Zealand Dollar strengthened against the US Dollar, part of a mixed performance against other major currencies. It showed varied changes against the EUR, GBP, JPY, CAD, AUD, and CHF.
Based on the sharp downturn in the US jobs market, we see a clear signal that the US Dollar’s strength is fading. The disappointing NFP report for July 2025 is not a minor miss; it’s a significant break that has reshaped expectations for the Federal Reserve. We should treat this as the beginning of a new trend for the coming weeks, rather than a single day’s reaction.
Investment Strategy
For those looking to act on this, we are positioning for a higher NZD/USD exchange rate. Buying call options on NZD/USD with September 2025 expiration dates offers a direct way to profit if the pair continues to rise, with risk limited to the premium paid. We see the recent break above 0.5900 as a key indicator, with a primary target of the psychologically important 0.6000 level.
This situation reminds us of the Fed’s policy pivot back in 2019, when weakening economic data forced a shift from hiking to cutting rates. In the months leading up to the first rate cut in July 2019, the US Dollar Index fell as markets priced in the move ahead of time. We anticipate a similar pattern of dollar weakness unfolding between now and the Fed’s September 2025 meeting.
The credibility of this view is reinforced by the market’s own pricing. The shift in Fed funds futures, which now show an 82% probability of a rate cut in September, is a powerful consensus. Historically, the CME FedWatch Tool has been a reliable indicator, and when probabilities reach such high levels, the Federal Reserve rarely disappoints.
We must also consider the policy divergence between central banks. While the Fed is now expected to ease policy, the Reserve Bank of New Zealand is in a different position, having dealt with a persistent 4.4% annual inflation rate as of Q2 2025. This suggests the RBNZ will be slower to cut rates, providing a fundamental reason for the New Zealand Dollar to outperform its US counterpart.
Given the market’s sharp reaction, implied volatility in currency options has likely increased. This presents an opportunity for those willing to take a slightly different approach, such as selling out-of-the-money put options on the NZD/USD pair. This strategy allows us to collect premium based on the view that the pair is unlikely to reverse its recent gains and fall significantly ahead of the September meeting.
