Insights 
VT 
The NZD/USD pair strengthens to near 0.5770 in the Asian session, due to reduced US-China trade tensions. An upcoming meeting between US President Trump and Chinese President Xi Jinping is pivotal for trade discussions.
US Treasury officials mention constructive talks with China, potentially avoiding a 100% tariff on Chinese imports. This easing in trade tensions is favourable for the New Zealand Dollar given China’s significant role as a trading partner for New Zealand.
US Federal Reserve Rate Cuts
Expectations for the US Federal Reserve to cut interest rates by 25 basis points at the October meeting also influence the NZD/USD pair. Meanwhile, the Reserve Bank of New Zealand has recently decreased its cash rate by 50 basis points, surpassing expectations.
The New Zealand Dollar (NZD), tied to the country’s economy and policies, often moves with China’s economic performance and dairy prices. The Reserve Bank’s decisions impact NZD based on inflation targets and interest rates, and economic data influences its value.
Broad market sentiment affects the NZD, with stronger performance in risk-on periods when market risks are low. Economic uncertainty and market turbulence tend to weaken the Kiwi, a commodity currency.
Given the positive developments in US-China trade talks, we see short-term strength in the NZD/USD. However, we must remember that despite a nearly 17% drop in bilateral trade we observed through 2024, the economic dependency remains high, making any verbal agreement fragile. The market is pricing in a favorable outcome for the Trump-Xi meeting, creating a risk of a “sell the news” event if the details are underwhelming.
Impact of Central Bank Policies
The US Federal Reserve’s expected rate cut this week is a significant driver weighing on the US Dollar. After inflation cooled considerably, with Core PCE falling to 2.3% in mid-2025 from its highs, the Fed has justification for its dovish pivot. This second consecutive rate cut, if it materializes, should provide a continued tailwind for the NZD/USD pair.
On the other side of the equation, the Reserve Bank of New Zealand is pursuing its own aggressive easing policy. Their surprise 50 basis point cut in October shows they are more concerned about domestic headwinds than the market anticipated, as New Zealand’s GDP growth slowed to just 0.9% year-over-year in the second quarter. This dovish RBNZ stance creates a clear headwind for the Kiwi, capping its potential gains against the dollar.
We have seen this scenario before during the prolonged trade disputes from 2018 to 2020, where positive headlines caused sharp but temporary rallies. Any breakdown in the talks on Thursday could erase the recent gains in an instant. The market’s memory of that volatility means traders will be cautious about holding long positions through the event itself.
With major event risk from both the Fed meeting and the US-China summit, implied volatility is likely to rise. This suggests that purchasing options to bet on a large price swing, regardless of direction, could be more prudent than a simple spot position. The conflicting signals from the dovish Fed and the even more dovish RBNZ create a perfect environment for a volatility breakout.
The Kiwi’s connection to commodity prices also needs to be watched closely. Recent stability in Global Dairy Trade auction prices, which saw a modest 4% recovery through the first half of 2025 after a weak 2024, provides a floor for the currency. However, this recovery isn’t strong enough on its own to fuel a major rally without broader risk-on sentiment.
Ultimately, the actual rate decisions this week may be less important than the language used by policymakers afterward. We will be closely watching the forward guidance from both the Fed and the RBNZ. Any indication that the Fed is done cutting, or that the RBNZ is planning more aggressive action, will set the pair’s direction for the remainder of the year.
