Insights 
VT 
The Fed’s Rate Outlook
The Federal Open Market Committee’s September minutes show a leaning towards further US rate cuts this year. The CME FedWatch Tool indicates a 92.5% probability of a 25-bps rate cut in October and a 78% chance of another cut in December.
The US government shutdown continues, with the Senate failing to agree on funding proposals. Meanwhile, the New Zealand Dollar weakened following an unexpected 50-bps rate cut by the RBNZ, with more cuts expected.
China’s economic performance significantly impacts the Kiwi due to trade ties with New Zealand. Dairy prices, vital for exports, also influence the NZD, affecting its strength with fluctuating market conditions.
RBNZ’s interest rate decisions are influenced by inflation targets, impacting bond yields and NZD valuation. Economic adjustments through interest changes can attract foreign investment or lead to depreciation.
Economic data releases are key to evaluating New Zealand’s economy, influencing the NZD’s value. Strong economic indicators can bolster the currency, while weak data might lead to a decline.
Risk Sentiment Impact
Risk sentiment plays a role, with the NZD appreciating in stable market conditions and declining amidst uncertainty. The currency weakens if investors prefer safer assets, showing its volatility under stress.
Given the current date of October 9, 2025, we are seeing the NZD/USD pair trade below 0.5800 as caution builds before Fed Chair Powell’s speech. This short-term strength in the US Dollar is a key factor, but the broader outlook for the currency appears weak. Traders should therefore be cautious about assuming this US dollar strength will last.
The Federal Reserve’s minutes from its September meeting clearly signaled a readiness to cut rates further this year. We see markets are pricing in a more than 90% probability of a rate cut at the FOMC meeting on October 29th, a sentiment supported by last week’s US jobs report, which showed hiring slowing to just 155,000. This underlying data reinforces the case for a more dovish Fed, which will likely weigh on the dollar in the coming weeks.
On the other side of the pair, the New Zealand Dollar is facing significant headwinds. The surprise 50 basis point rate cut by the Reserve Bank of New Zealand yesterday, on October 8th, has pushed the currency down sharply. This aggressive move came after recent data confirmed New Zealand entered a technical recession in the third quarter, with another rate cut now widely expected in November.
The weakness in the Kiwi is further compounded by external factors. The latest Global Dairy Trade auction this week showed prices falling another 3.1%, hurting a key source of New Zealand’s export revenue. This trend is happening alongside signs of a manufacturing slowdown in China, New Zealand’s largest trading partner, which dampens the demand outlook.
This clear divergence between an actively cutting RBNZ and a Fed that is only just beginning to ease suggests a path of least resistance is lower for NZD/USD. We believe derivative traders could position for further downside by buying put options on the pair. This strategy allows for profiting from a continued fall while managing risk ahead of potentially volatile events like the Fed speech and the ongoing US government shutdown.
