NZD/USD remains under pressure for a third consecutive session, trading around the 0.5830 area during Asian hours on Monday. The pair edges lower as the US Dollar (USD) regains some of its recent losses on technical grounds. However, downside momentum may remain limited, as the broader USD outlook continues to be weighed down by expectations of two additional interest rate cuts by the Federal Reserve (Fed) in 2026.
Fed policy expectations remain a key driver
Market participants are turning their attention to the Federal Open Market Committee December Meeting Minutes, scheduled for release on Tuesday, which could offer further insight into internal policy discussions and the Fed’s rate outlook for 2026.
According to the CME FedWatch tool, markets are pricing an 81.7% probability that the Fed will keep rates unchanged at its January meeting, up from 77.9% a week earlier. At the same time, the likelihood of a 25-basis-point rate cut has declined to 18.3% from 22.1%.
At its December meeting, the Fed cut interest rates by 25 basis points, bringing the target range to 3.50%–3.75%. This move capped a total of 75 bps in rate reductions delivered in 2025, as the labor market cooled while inflation remained above target.
RBNZ outlook could support the New Zealand Dollar
On the domestic front, the New Zealand Dollar (NZD) may find some support from firmer expectations that the Reserve Bank of New Zealand (RBNZ) could eventually move toward tighter policy. Recent data showed that New Zealand’s economy rebounded in the third quarter, reinforcing signs of a modest recovery after an extended period of weakness.
RBNZ Governor Anna Breman recently stated that interest rates are likely to remain at current levels for some time, signaling a cautious and data-dependent approach. While immediate tightening appears unlikely, the improving economic backdrop could help limit further downside in NZD/USD despite near-term US Dollar strength.
Ready to start trading Forex? Join iXBroker today and kick-start your trading journey now!
