NZD/USD is stable around 0.5750, benefiting from ongoing US-China trade tensions, while the US Dollar struggles due to market caution. After a seven-day decline, the pair is trading near 0.5740 in early European trading on Thursday. US President Donald Trump described the situation as a trade war with China, although US Treasury Secretary suggested pausing high tariffs. Fed Chair Jerome Powell mentioned that the central bank plans another quarter-point rate cut this month, complicating the US Dollar’s position.

CME FedWatch Tool Outlook

The CME FedWatch Tool indicates a 96% chance of a Federal Reserve rate cut in October and a 95% chance of another in December. Meanwhile, the NZD could weaken further as the Reserve Bank of New Zealand (RBNZ) keeps a dovish outlook. The RBNZ has hinted at possible easing based on incoming data, expecting a rate cut in November and a drop to 2.0% by 2026. Economic ties with China and dairy prices heavily influence the NZD, significantly affecting New Zealand’s trade. During times of optimism, the NZD tends to strengthen, but it weakens amid uncertainty, as investors seek safer assets. Macroeconomic data will play a key role in determining whether the NZD strengthens or weakens based on New Zealand’s economic performance. As of October 16, 2025, the NZD/USD pair has a slight bounce near 0.5750, but this should not be seen as a sign of strength for the Kiwi. This modest gain is mostly due to a weaker US Dollar, pressured by ongoing trade tensions and a high likelihood of a Federal Reserve rate cut this month. The pair has been in a downward trend since failing to stay above 0.61 earlier this year; this pause looks like a temporary blip.

Central Banks Race to Cut Rates

We are observing a race between central banks keen to lower interest rates. The CME FedWatch Tool shows a 96% chance of a Fed rate cut, driven by US inflation data from the second quarter of 2025, which indicated a drop to 2.9%. This makes holding US Dollars less appealing, significantly impacting the currency’s current struggles. At the same time, the Reserve Bank of New Zealand holds a dovish stance, with expectations for a rate cut in November. New Zealand’s economic links to China pose a major risk, especially as the trade war continues. In 2024, the US trade deficit with China narrowed by 8%, but this reduced overall trade volume, harming Kiwi exporters. Commodity prices are also putting pressure on the New Zealand Dollar. The Global Dairy Trade (GDT) index, crucial for New Zealand’s main export, has fallen by 4.1% over the last three months. This decline in dairy prices mirrors a trend from mid-2023, directly affecting the country’s export revenue and weakening the NZD’s fundamentals. Given the competing weaknesses and uncertainty, we think options strategies will be the best way to manage risks in the weeks ahead. For traders expecting the downtrend to continue, buying NZD/USD put options with a date past the RBNZ’s November policy meeting is a viable opportunity. This lets us profit from a potential drop while clearly defining our maximum risk based on the premium paid. For a more cost-effective strategy, we could implement a bear put spread. This involves buying one put option while selling another at a lower strike price, lowering the upfront costs. This method is well-suited for aiming at a cautious decline, perhaps targeting the 0.5600 support level we tested earlier this year. Create your live VT Markets account and start trading now.

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