The New Zealand Dollar (NZD) strengthened to around 0.5665 against the US Dollar (USD) during Asian trading hours on Monday, buoyed by positive developments in US-China relations and a hawkish tone from the Reserve Bank of New Zealand (RBNZ) [1]. China’s Commerce Ministry announced an extension of the trade ceasefire with the US until January 2027, and both countries agreed to establish a China-US Trade Council and a communication channel for AI incidents, as well as to continue discussions on increasing China-US flights [1].
On the monetary policy front, the NZD outperformed most major currencies after RBNZ Governor Anna Breman delivered hawkish remarks, which increased market-implied odds of a 25 basis point rate hike to 3.00% at the next October 28 meeting from 57% to 73%, according to strategists at Brown Brothers Harriman [1]. Breman highlighted inflation risks from energy markets, noting that persistent higher oil prices could lead to higher near-term inflation than previously forecasted. The upcoming Q3 CPI release on October 21 is expected to be closely watched, with the RBNZ forecasting headline CPI inflation to ease to 3.9% year-on-year from 4.1% in Q2 [1].
Meanwhile, hawkish signals from US Federal Reserve policymakers, including Cleveland Fed President Beth Hammack, Richmond Fed President Tom Barkin, and Boston Fed President Susan Collins, have bolstered expectations for further US rate hikes. Traders now see a 65.9% probability of a Fed rate hike in October and a 94.3% chance in December, according to the CME FedWatch tool [1]. Hammack emphasized the risk of an inflationary mindset and the need to maintain restrictive policy, with the FXS Fed Sentiment Index slipping by 0.34 points to 147.72, indicating a modest pullback in hawkish intensity but still reflecting a firm anti-inflation stance [1].
The combination of the US-China trade truce extension and the RBNZ’s hawkish outlook has provided support for the NZD, even as the prospect of further US rate hikes could strengthen the USD and potentially limit gains for the Kiwi [1].
CONCLUSION
The New Zealand Dollar’s rise above 0.5665 was driven by the extension of the US-China trade truce and a hawkish shift from the RBNZ, which increased market expectations for an October rate hike. However, persistent hawkish signals from the US Federal Reserve and high odds of further US rate hikes may temper NZD gains. Market participants are closely watching upcoming inflation data and central bank decisions for further direction.