Insights 
VT 
The New Zealand Dollar pulled back after reaching highs near 0.5760, although it remained positive by bouncing from 0.5700. Easing tensions between the US and China are supporting the NZD, while speculation around potential Fed rate cuts is affecting the US Dollar.
Markets reacted to President Trump’s optimism about a fair deal with China, with their meeting in South Korea approaching. A 25 basis points rate cut by the Fed next week seems inevitable, with another expected in December, highlighting concerns over potential excessive monetary easing.
Impact Of US Government Shutdown
The US government shutdown has persisted for four weeks, with the Senate failing to restore funding on several attempts. Trump’s refusal to meet with Democratic lawmakers is lengthening what could be a historic shutdown.
This scenario has affected the US Dollar, while the NZD benefits from China’s firm economic data and New Zealand’s rising inflation pressures. Despite this, expectations remain that the RBNZ might cut rates by year-end to bolster economic growth.
Renewed US-China trade tensions have emerged with Trump’s return to office, as he plans to impose 60% tariffs, potentially reviving trade conflicts and affecting global economic dynamics, especially impacting consumer prices.
We are seeing the NZD/USD pair pull back from recent highs, creating a difficult picture for the coming weeks. The market is caught between two powerful forces: a weakening US Dollar due to Federal Reserve policy and a New Zealand Dollar held back by its close ties to China. This tension means traders should prepare for sudden movements.
Focus On The Federal Reserve And Global Implications
The focus is clearly shifting to the Federal Reserve, with markets now pricing in an 88% probability of a 25 basis point rate cut at the November 5th meeting, according to CME Group data. This follows last week’s report showing US Q3 GDP growth slowed to 1.4%, a sign that the trade war’s impact is hitting home. A softer US economy and expected rate cuts will likely keep a lid on the US Dollar’s strength.
On the other hand, the 60% tariffs imposed on Chinese goods back in January 2025 have severely impacted Asian markets. Recent data shows Chinese exports to the United States are down 48% year-to-date, directly harming the economic outlook for China proxies like New Zealand. This is reflected in the Global Dairy Trade index, a key kiwi indicator, which has slumped 18% over the last six months.
For derivative traders, this high level of uncertainty suggests volatility is the main play. Implied volatility in NZD/USD options has climbed to levels not seen since early 2024, making strategies that profit from large price swings, such as long straddles or strangles, particularly relevant. Hedging existing positions with put options may also be a prudent move against further downside shocks from trade news.
We can look back to the 2018-2019 trade dispute for a potential guide on how this might unfold. During that period, despite a dovish turn from the Fed in 2019, the NZD/USD pair remained in a broad downtrend, falling from above 0.70 to nearly 0.62. This historical pattern suggests the powerful negative drag from the US-China conflict could ultimately outweigh the benefits of a weaker US dollar.
