NZD/USD has snapped its five-day losing streak, trading near 0.5760 during Friday’s Asian session. The pair is appreciating as the US Dollar faces downward pressure from market expectations of two additional Federal Reserve rate cuts in 2026.
Markets are bracing for President Donald Trump’s nomination of a successor to Fed Chair Jerome Powell in May, a move that could steer monetary policy toward lower rates. Following a cumulative 75 basis points (bps) of cuts in 2025 to address a cooling labor market amid elevated inflation, the Fed lowered rates by another 25 bps in December, bringing the target range to 3.50%–3.75%. Currently, the CME FedWatch tool indicates an 85.1% probability of the Fed holding rates steady in January, up from 84.5% last week, while odds of a cut have dropped to 14.9%.
However, the FOMC’s December Meeting Minutes revealed a divided outlook. Most participants felt pausing further cuts would be appropriate if inflation continues easing, whereas some argued for holding rates steady following the 2025 cuts aimed at supporting the weakening labor market.
Meanwhile, the New Zealand Dollar is finding support from stronger expectations of a Reserve Bank of New Zealand (RBNZ) rate hike. Recent data showing a Q3 economic rebound reinforced signs of a recovery after prolonged weakness. RBNZ Governor Anna Breman added that interest rates are likely to remain at current levels for some time.
