The New Zealand Dollar is gaining strength because of optimism around a trade deal between the US and China. There are also expectations that the Federal Reserve will cut interest rates this week, which is helping the Kiwi stay strong. Meanwhile, the US Dollar is under pressure before the FOMC meeting and the important Trump–Xi summit. At the start of the week, NZD/USD was steady, trading around 0.5760, which is a 0.25% rise on Monday. A framework agreement was announced, with China easing rare earth export restrictions and purchasing US soybeans. In return, the US has backed off plans for additional tariffs.

Easing Trade Tensions Impact

Easing trade tensions are likely to increase demand for Asian-linked currencies, including the NZD. The focus is now on the Federal Reserve, where markets expect a 25 basis-point rate cut. However, Fed policymakers have differing views on how quickly to make these cuts, which affects the US Dollar. A dovish stance from the Fed and positive US-China discussions continue to support the NZD/USD pair. Today, the New Zealand Dollar is showing the most strength against the Japanese Yen, as shown in percentage changes against other major currencies. The heat map displays these currency shifts, highlighting the NZD’s position against the US Dollar and others. We are seeing a familiar situation where positive feelings about US-China relations and a potentially dovish Federal Reserve may boost the NZD/USD pair. On October 27, 2025, high-level talks are planned for next month between Washington and Beijing to discuss lowering technology sector tariffs. This reminds markets of similar sentiment shifts we noticed during the trade disputes in 2019. Currently, the New Zealand Dollar, trading near 0.5950, is getting support from signs that China, its largest trading partner, is stabilizing. China’s recent Caixin Manufacturing PMI unexpectedly rose to 50.2, marking its first growth in three months and easing concerns about a drastic slowdown. This is crucial for New Zealand, as its export volumes to China have increased by 4% over the past year, according to recent data from Statistics New Zealand.

US Dollar Pressure and Market Volatility

On the other hand, the US Dollar is feeling pressure as the Fed keeps rates steady at 5.25%. After an aggressive rate hike cycle in 2022-2023, new job creation data showed a drop to 160,000, falling short of expectations for two months in a row. The CME FedWatch Tool indicates a 45% chance of a rate cut by the end of the first quarter of 2026, a notable shift from just a few months ago. Given this backdrop, we suggest that traders think about buying NZD/USD call options that expire in early 2026 to take advantage of potential gains if the Fed indicates a more dovish direction. This strategy offers defined risk if US-China talks don’t go well or if the Reserve Bank of New Zealand hints at cutting its rates first. The biggest risk is a surprise hawkish move from the Fed, but weakening economic data makes that less likely. Reflecting on the sharp rallies of late 2019 based on trade deal hopes, we know this pair can move quickly in response to geopolitical news. Implied volatility for NZD/USD has already reached a three-month high ahead of upcoming talks and the next FOMC meeting. Therefore, any long positions should be managed with care, as we know positive sentiment can shift quickly if negotiations hit a snag. Create your live VT Markets account and start trading now.

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