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- NZD/USD rises as the US Dollar weakens on expectations of two more Federal Reserve rate cuts in 2026.
- Markets brace for President Trump to nominate a new Fed chair in May, potentially favoring lower interest rates.
- The New Zealand Dollar gains support from rising expectations of an RBNZ interest rate hike.
NZD/USD halts its five-day losing streak, trading around 0.5760 during the Asian hours on Friday. The pair appreciates as the US Dollar (USD) loses ground over expectations of two more Federal Reserve rate cuts in 2026.
Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates. The Fed lowered interest rates by 25 basis points (bps) at the December meeting, bringing the target range to 3.50%–3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation.
The CME FedWatch tool shows an 85.1% probability of rates being held at the Fed’s January meeting, up from 84.5% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 14.9% from 15.5% a week ago.
However, the Federal Open Market Committee’s December Meeting Minutes suggested a divided policy outlook. Most participants felt it would likely be appropriate to pause further rate cuts if inflation continues to ease, while some officials argued for keeping rates unchanged for a period following three cuts in 2025 aimed at supporting a weakening labor market.
The New Zealand Dollar (NZD) also finds support from stronger expectations of a rate hike by the Reserve Bank of New Zealand (RBNZ). Recent data showed the economy rebounded in the third quarter, reinforcing signs of a modest recovery after a prolonged period of weakness. RBNZ Governor Anna Breman added that interest rates are likely to remain at current levels for some time.
