NZD/USD holds steady near 0.5750 amidst ongoing US-China trade tensions, benefiting from the US Dollar’s struggle due to market caution. The pair halted a seven-day losing streak and is trading around 0.5740 during early European hours on Thursday.

US President Donald Trump characterised the situation as a trade war with China, despite US Treasury Secretary proposing a pause on high tariffs. Fed Chair Jerome Powell noted the central bank’s plan for another quarter-point rate cut this month, contributing to USD challenges.

CME FedWatch Tool Outlook

The CME FedWatch Tool shows a 96% likelihood of an October Fed rate cut and a 95% chance of another in December. Meanwhile, NZD potentially faces further decline as the Reserve Bank of New Zealand maintains a dovish policy outlook.

The RBNZ hinted at potential easing, pending incoming data, with expectations of a rate cut in November and rates dropping to 2.0% by 2026. Economic ties with China’s performance and dairy prices are influential for the NZD, as these factors significantly impact New Zealand’s trade performance.

During risk-on periods, NZD strengthens, but it tends to weaken amidst market uncertainty, reflecting investors’ shift towards safer assets. Macroeconomic data remain pivotal in determining NZD strength or depreciation based on New Zealand’s economic performance.

As of October 16, 2025, the NZD/USD pair is seeing a temporary lift near 0.5750, but we should not interpret this as a sign of Kiwi strength. This small gain is primarily due to a weaker US Dollar, which is under pressure from ongoing US-China trade tensions and the high probability of a Federal Reserve rate cut later this month. The pair has been in a clear downtrend since it failed to hold above 0.61 in the first half of this year, and this recent pause is likely a brief interruption.

Central Banks Race to Cut Rates

We are watching a race between two central banks eager to cut interest rates. The CME FedWatch Tool shows a 96% chance of a Fed rate reduction, a move supported by US inflation data from the second quarter of 2025, which showed a cooling to 2.9%. This makes holding US Dollars less attractive and is the main reason for the currency’s current struggle.

However, the Reserve Bank of New Zealand has its own dovish stance, with markets expecting a rate cut in November. New Zealand’s economic exposure to China is a significant vulnerability, particularly as the trade war continues to simmer. Looking back, we saw the US trade deficit with China narrow by 8% through 2024, but this came at the cost of reduced overall trade volume, which directly impacts Kiwi exporters.

Adding to the pressure on the New Zealand Dollar are commodity prices. The Global Dairy Trade (GDT) index, a vital indicator for New Zealand’s main export, has shown a 4.1% decline over the last three months. This drop in dairy prices, similar to a trend we observed back in mid-2023, directly cuts into the country’s export revenue and weakens the fundamental case for the NZD.

Given this environment of competing weaknesses and high uncertainty, we believe options strategies are the most effective way to navigate the coming weeks. For traders anticipating a resumption of the downtrend, buying NZD/USD put options with an expiration date after the RBNZ’s November policy meeting presents a clear opportunity. This allows us to profit from a potential drop while strictly defining our maximum risk to the premium paid.

For a more capital-efficient strategy, we could use a bear put spread. This involves buying a put option and simultaneously selling another at a lower strike price, which reduces the upfront cost of the position. This approach is suitable for targeting a measured move lower, perhaps towards the 0.5600 support level we saw tested earlier this year.

Create your live VT Markets account and start trading now.