NZD/USD holds firm amid weaker US dollar; RBNZ rate decision and FOMC minutes in focus

Daily Currency Update

The New Zealand dollar (NZD) is trading on a firmer footing against the US dollar (USD) in early Asian hours on Monday, with the NZD/USD pair hovering near US$0.5825. A softer tone in the greenback, pressured by mounting concerns over a potential prolonged US government shutdown, is providing support to the Kiwi ahead of a highly anticipated week for monetary policy watchers.

Investor sentiment toward the US dollar remains cautious as fiscal uncertainty in Washington adds another layer of risk to an already complex macroeconomic backdrop. While no immediate resolution is in sight, the political impasse is raising concerns about disruptions to federal operations, weighing on the USD and boosting demand for higher-yielding and risk-sensitive currencies, such as the NZD. However, gains in the New Zealand dollar could be short-lived as attention turns to the Reserve Bank of New Zealand (RBNZ) policy meeting scheduled for Wednesday.

The central bank is widely expected to cut its Official Cash Rate (OCR) from the current level of 3.0%. Markets have fully priced in a 25-basis-point cut, while also assigning roughly a 30% probability to a more aggressive 50-basis-point reduction. The shift toward a more accommodative policy stance marks what many economists are calling a “dovish pivot” by the RBNZ.

With inflation moderating and domestic growth showing signs of fatigue, policymakers are increasingly focused on supporting the economy. Forward guidance from the central bank will be closely scrutinised, as markets look for clues about the pace and extent of future rate cuts. A clearly dovish tone could limit further upside in the Kiwi, even as the USD remains under pressure.

Meanwhile, traders are also eyeing the release of the Federal Open Market Committee (FOMC) meeting minutes, due on Wednesday. The minutes will offer deeper insights into the Fed’s internal discussions about inflation, interest rates and the broader economic outlook. Any signal of a more cautious approach to future hikes could reinforce recent USD weakness.

In the near term, NZD/USD remains supported by external factors, but domestic monetary policy developments could introduce fresh volatility. A break above the US$0.5840 resistance level could pave the way for further gains, while dovish surprises from the RBNZ may expose the pair to a pullback toward the US$0.5780 area.