Insights 
VT 
The New Zealand Dollar nears last week’s highs above 0.5840 after an uptick from 0.5810. A positive sentiment boosts the Kiwi in early European trading. The anticipated “dovish cut” by the RBNZ on Wednesday may pose a hurdle for the NZD’s rebound.
Market sentiment has improved, with risk-sensitive currencies like the New Zealand Dollar performing well at the beginning of the week. The NZD/USD pair has recovered from earlier lows of 0.5810, closing in on last week’s peak of 0.5840.
Optimistic Risk Sentiment
Optimistic risk sentiment is balancing out expectations that the Reserve Bank of New Zealand may lower its Official Cash Rate (OCR) to a 3-year low from the current 3%. The decision is expected after the bank’s policy meeting this week.
There is division in the market regarding the scale of the expected rate cut, with options ranging between 25 or 50 basis points. Meanwhile, in the US, the Dollar remains subdued due to an ongoing Senate standoff and a government shutdown entering its second week.
In the absence of governmental data, comments from Federal Reserve officials take centre stage. The market expects an October rate cut, with another potential cut in December, limiting US Dollar gains.
A familiar tension is building in the NZD/USD as we approach the RBNZ’s monetary policy review on October 29th. We are seeing the Kiwi dollar consolidate around 0.6150, reflecting market uncertainty. This situation mirrors past instances where expectations of a dovish central bank move created choppy trading conditions.
Core Issue For The RBNZ
The core issue for the RBNZ is balancing sticky inflation, which recently printed at 3.5% for Q3 2025, against a weakening labor market where unemployment has risen to 4.2%. While the bank is not expected to cut its 4.5% OCR this month, any hint of future easing in their statement could pressure the NZD. This makes selling call options or buying puts on the NZD an interesting strategy to consider for hedging or speculation.
On the other side of the pair, the US Dollar finds support from a Federal Reserve holding rates steady, with futures markets now pricing in the first potential cut well into 2026. This contrasts with the growing belief that the RBNZ will be forced to ease policy sooner. This divergence in central bank outlooks typically favors the currency with the higher-for-longer interest rate profile.
Therefore, we believe traders should prepare for a potential drop in the NZD/USD pair following the RBNZ’s announcement. We recall from past “dovish cut” cycles that the initial currency reaction can be swift and sharp. Consequently, positioning through short-dated put options could offer a defined-risk way to profit from a dovish statement, even if the bank holds the OCR steady for now.
