NZD/USD fell to about 0.5870 on Friday and was down 0.54% on the day, as the US Dollar rose amid geopolitical tensions and caution ahead of the US labour report.
The New Zealand Dollar stayed weak after the Reserve Bank of New Zealand kept the Official Cash Rate unchanged at 2.25% at its February meeting. The bank signalled it plans to keep policy supportive, and markets moved the expected first rate rise to later this year.
Higher energy costs also weighed on the Kiwi after the Strait of Hormuz closed amid rising Middle East tensions. Oil moved above $80 per barrel, which can raise import costs for New Zealand.
The US Dollar gained on safe-haven demand and positioning ahead of the US Nonfarm Payrolls report. Forecasts point to about 59K jobs added in February versus 130K in January, with the Unemployment Rate seen at 4.3%.
If payrolls come in above forecasts, it could support expectations that US interest rates stay high for longer. This could keep NZD/USD under pressure in the near term.
Looking back to early 2025, we saw the Kiwi struggle near 0.5870, largely because the Reserve Bank of New Zealand was holding its rate at a low 2.25%. Today, the situation has shifted, with the RBNZ’s Official Cash Rate now at 5.50% to fight persistent inflation. This fundamental change suggests that long-term put options that were profitable then may no longer be the straightforward trade.
The US Dollar’s strength, which we saw during the geopolitical tensions of 2025, continues to be a major factor for us. The just-released February labor report showed the US added a solid 195,000 jobs, beating expectations and keeping the unemployment rate low at 3.6%. This reinforces the view that the Federal Reserve has little reason to cut rates from its current 5.25-5.50% range, making call options on the US Dollar Index (DXY) an interesting hedge.
We also see that energy costs, which pushed oil above $80 a barrel during the Strait of Hormuz closure last year, remain a concern for the New Zealand economy. With WTI crude currently trading around $78 per barrel, New Zealand’s reliance on imported oil continues to be a drag on the Kiwi. This persistent headwind could create opportunities for range-bound strategies, like selling short-dated strangles on NZD/USD, assuming no major new supply shocks.
The dynamic we’re facing now is different from 2025’s clear one-way pressure on the Kiwi, when the RBNZ was far more dovish than the Fed. With both central banks now holding high rates, we’re in a “hawkish hold” environment that limits the interest rate differential’s influence. This suggests that implied volatility on the pair might be overpriced, presenting a potential opportunity for traders to sell volatility in the coming weeks.
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