The New Zealand Dollar is close to last week’s high of 0.5840 after rising from 0.5810. A positive market outlook helps the Kiwi at the start of European trading. However, the expected “dovish cut” by the Reserve Bank of New Zealand (RBNZ) on Wednesday could make it harder for the NZD to bounce back. Market feelings have improved, with currencies like the New Zealand Dollar doing well at the week’s start. The NZD/USD pair has bounced back from earlier lows of 0.5810, nearing last week’s peak of 0.5840.

Optimistic Risk Sentiment

The positive risk sentiment is offsetting expectations that the RBNZ might lower its Official Cash Rate (OCR) from the current 3% to a three-year low. This decision is anticipated after the bank’s meeting this week. There are mixed opinions in the market about how much the rate will be cut, with possibilities ranging from 25 to 50 basis points. Meanwhile, the US Dollar is losing strength due to a Senate impasse and a government shutdown, which is now into its second week. Since there is no significant government data available, remarks from Federal Reserve officials are gaining attention. The market is looking at a possible rate cut in October, with another expected in December, which limits the strength of the US Dollar. As we near the RBNZ’s monetary policy review on October 29th, familiar tensions are building in the NZD/USD. The Kiwi dollar is stabilizing around 0.6150, showing uncertainty in the market. This situation is similar to previous times when expectations of a dovish central bank led to erratic trading.

Core Issue For The RBNZ

The main challenge for the RBNZ is to manage persistent inflation, which was recently recorded at 3.5% for Q3 2025, while also considering a weakening labor market where unemployment has climbed to 4.2%. While the bank is not expected to reduce its 4.5% OCR this month, any signals of future easing in their statement could put pressure on the NZD. Thus, selling call options or buying puts on the NZD could be an interesting strategy for hedging or speculation. On the opposite side, the US Dollar is finding support as the Federal Reserve keeps rates stable, with futures markets predicting the first potential rate cut well into 2026. This is in contrast to the growing belief that the RBNZ will need to ease policy sooner. The differing outlooks of the central banks typically benefit the currency that maintains higher interest rates for a longer time. Therefore, traders should brace for a possible decline in the NZD/USD pair following the RBNZ’s announcement. Historical “dovish cut” cycles show that initial reactions in currency markets can be quick and sharp. As a result, using short-dated put options could provide a low-risk way to profit from a dovish statement, even if the bank decides to keep the OCR steady for now. Create your live VT Markets account and start trading now.

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