The Fed’s Rate Outlook The minutes from the Federal Open Market Committee’s September meeting show a trend toward further interest rate cuts in the US this year. According to the CME FedWatch Tool, there’s a 92.5% chance of a 25-basis-point rate cut in October and a 78% likelihood of another cut in December. The US government is still in a shutdown, with the Senate unable to agree on funding proposals. Meanwhile, the New Zealand Dollar (NZD) has weakened after an unexpected 50-basis-point rate cut by the Reserve Bank of New Zealand (RBNZ), which may lead to more cuts in the future. China’s economic performance has a significant effect on the Kiwi because of trade relations. Dairy prices, which are crucial for exports, also impact the NZD. Changes in the market can influence its strength. The RBNZ’s interest rate decisions are guided by inflation targets, which can affect bond yields and the NZD’s value. Adjusting interest rates can either attract foreign investment or lead to a decrease in currency value. Key economic data releases are essential for assessing New Zealand’s economy and the NZD’s value. Strong data can strengthen the currency, while weak information may cause it to decline. Risk Sentiment Impact Risk sentiment plays a role in currency performance. The NZD tends to rise in stable markets but falls during uncertain times. If investors lean towards safer assets, the NZD may weaken, highlighting its volatility. As of October 9, 2025, the NZD/USD pair trades below 0.5800 with caution growing ahead of Fed Chair Powell’s speech. The short-term strength of the US Dollar is a major factor, but the overall outlook for the NZD seems weak. Traders should be careful not to assume that this US dollar strength will continue. The minutes from the Federal Reserve’s September meeting indicated a willingness to cut rates again this year. Markets suggest over a 90% chance of a rate cut at the FOMC meeting on October 29th, supported by last week’s US jobs report showing a slowdown in hiring to just 155,000. This data strengthens the case for a more dovish Fed, which could negatively affect the dollar in the coming weeks. On the other hand, the New Zealand Dollar faces challenges. The RBNZ’s surprise 50 basis point rate cut on October 8th caused a sharp decline in the currency. This bold move followed recent data showing that New Zealand entered a technical recession in the third quarter. Another rate cut is now widely anticipated in November. Compounding the Kiwi’s weakness are external factors. The latest Global Dairy Trade auction revealed a 3.1% drop in prices, negatively impacting a key source of New Zealand’s export revenue. This decline occurs alongside signs of a slowdown in China’s manufacturing sector, which dampens the demand outlook for New Zealand. The clear difference between an aggressively cutting RBNZ and a Federal Reserve that has just started easing indicates that the path of least resistance is downward for NZD/USD. We suggest that traders consider buying put options on the pair to profit from a potential decline while managing risk ahead of potentially volatile events like the Fed speech and the ongoing US government shutdown. Create your live VT Markets account and start trading now.

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