The NZD/USD pair is continuing to recover from the range of 0.5685-0.5680 and has reached a near three-week high during Tuesday’s Asian session. Current spot prices are around 0.5780, reflecting an increase of over 0.20% for the day, thanks to a positive economic outlook. Easing trade tensions between the US and China are lifting antipodean currencies like the Kiwi. Recent discussions about a potential trade deal are creating a positive risk sentiment, which is weighing on the US Dollar. This is compounded by expectations that the Federal Reserve will lower interest rates.

Federal Reserve Actions

According to the CME Group’s FedWatch Tool, traders are nearly fully expecting a 25-basis-point interest rate cut on Wednesday, with another cut likely in December. Recent US consumer inflation data support this view and keep the US Dollar weak. The Reserve Bank of New Zealand has a dovish outlook, aiming to keep inflation around the 2% target, which could limit gains for NZD/USD. However, the trends remain upward, with the pair targeting the 0.5800 level. Against the US Dollar, major currencies have shown different percentage changes, including a 0.36% decline for the USD relative to the NZD. A heat map illustrates these currency dynamics for the week. The NZD/USD is pushing toward the 0.5900 level, recovering solidly from its lows around 0.5750 earlier this month. This movement is driven by a weaker US Dollar and improved market risk appetite, suggesting potential for further increases in the weeks ahead.

Economic Context and Projections

This scenario resembles past situations, like in the late 2010s, where signs of easing US-China trade tensions boosted the Kiwi dollar. While trade wars are not the main concern today in October 2025, renewed high-level talks between the nations are easing market fears. This positive risk environment makes commodity-linked currencies like the NZD more appealing compared to the safe-haven USD. The US Dollar is also weakening as markets expect a shift in policy from the Federal Reserve. After a long stretch of high rates, recent US inflation data from September 2025 was 2.8%, reinforcing predictions that the Fed is likely to cut rates next. The CME FedWatch Tool now indicates over a 60% chance of a rate cut by the end of the first quarter of 2026. However, we should keep in mind that the Reserve Bank of New Zealand is also leaning dovish, which might limit the rally. New Zealand’s recent Q3 2025 GDP data showed growth slowing to only 0.2%, prompting the RBNZ to consider easing its own policy to support the economy. So, while the Fed may be dovish, the RBNZ is not far behind. For derivative traders, this suggests a cautious yet optimistic strategy, as the path appears to be upward for now. Buying call options on NZD/USD may allow traders to benefit from a potential rise toward 0.6000 while managing risk. This is particularly relevant given the uncertainty surrounding when both central banks will cut rates. Create your live VT Markets account and start trading now.

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