NZD/USD rises as US Dollar retreats on Fed independence concerns

• The US Dollar retreats amid renewed political tensions surrounding the Federal Reserve.
• Jerome Powell’s comments revive concerns over US monetary policy independence.
• The New Zealand central bank’s still-restrictive stance supports the New Zealand Dollar.

NZD/USD advances and trades around 0.5770 on Monday, up 0.60% on the day at the time of writing. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) as renewed concerns over the independence of the Federal Reserve (Fed) underpin the pair. Investors remain cautious ahead of the release of the US Consumer Price Index (CPI) on Tuesday, which could provide fresh direction to the market.

Tensions between the White House and the Federal Reserve intensified over the weekend after Fed Chair Jerome Powell said he had been threatened with a criminal indictment related to the renovation works at the central bank’s Washington headquarters. Powell described these threats as a pretext aimed at pressuring the institution into cutting interest rates.

These remarks have revived fears of political interference and weighed on the credibility of the US institutional framework, putting downward pressure on the US Dollar. In this context, Ray Attrill, Head of FX Strategy at National Australia Bank, noted that this open confrontation between the US administration and the Fed is clearly a negative factor for the Greenback.

The US Dollar is also undermined by expectations of further monetary easing in the United States (US). Recent labor market data reinforce this view, with job creation falling short of expectations in December. Nonfarm Payrolls (NFP) rose by 50,000, compared with 56,000 in the previous month and below market forecasts, while the Unemployment Rate edged down slightly to 4.4%. This backdrop fuels bets on additional rate cuts, adding to downside pressure on the USD.

On the New Zealand side, the Reserve Bank of New Zealand’s (RBNZ) relatively hawkish stance provides support to the New Zealand Dollar. The central bank has indicated that the rate-cutting cycle may be complete, although the possibility of further easing remains if economic performance falls short of projections. Most economists expect the policy rate to remain unchanged for much of 2026, with the first rate hikes not anticipated until late 2026 or early 2027.

In the background, geopolitical tensions in the Middle East remain an additional risk factor. Threats from US President Donald Trump regarding possible repercussions in the event of attacks on civilians, along with warnings from Tehran directed at the United States and Israel, could revive demand for safe-haven assets. In such a scenario, the US Dollar could temporarily regain some support, potentially limiting further upside in NZD/USD.