NZD/USD pares gains as Greenback firms, optimism grows over US-China trade talks

• NZD extends losses for the second day on Friday but remains on track for a weekly gain.
• US President Donald Trump signals "most trade deals are finished," with talks nearing conclusion with China.
• US Treasury Secretary Bessent confirms tariff talks with China to resume next week in Stockholm.

The New Zealand Dollar (NZD) extends losses for a second consecutive session on Friday but remains poised for a weekly gain, supported by improved risk sentiment amid growing optimism over potential US trade deals. A mid-week bounce in the Greenback, underpinned by strong US economic data and firm expectations that the Federal Reserve (Fed) will keep interest rates unchanged at its policy meeting on Wednesday, has limited the Kiwi's upside, even as global market mood stays broadly positive.

The NZD/USD pair kicked off the week on a strong footing, climbing to a three‑week high of 0.6059 on Thursday, buoyed by broad-based US Dollar weakness. However, the rally lost momentum as the Greenback regained strength. At the time of writing on Friday, NZD/USD is hovering around 0.6011, consolidating early-week gains as markets head into the weekend with a cautious tone.

Improving trade sentiment continues to support global risk appetite. This week, the United States (US) finalized bilateral trade agreements with Japan, Indonesia, and the Philippines, raising hopes of a broader shift away from protectionist policies. On Friday, US President Donald Trump stated that "most of the trade deals are finished," noting that many have already been formalized through letters outlining tariff rates ranging from 10% to 15%. He added that there is a "50-50 chance" of reaching a deal with the European Union (EU), while also stating that the US is "nearing" an agreement with China, saying, "we have the confines of a deal."

Earlier this week, US Treasury Secretary Scott Bessent signaled a shift toward more constructive trade engagement with China, stating that "trade is in a very good place" and confirming plans to meet Chinese officials next week in Stockholm to extend the August 12 tariff deadline and broaden economic discussions beyond just tariffs.

While trade progress has lifted overall market sentiment, markets are now pricing in roughly a 75% chance that the Reserve Bank of New Zealand (RBNZ) will cut its 3.25% cash rate by 25 basis points at its August policy meeting. However, investors increasingly believe that the central bank is nearing the end of its easing cycle. RBNZ Chief Economist Paul Conway reinforced this view on Thursday, stating that the central bank remains open to further rate cuts if inflation continues to decline as expected. He also warned that rising US tariffs could dampen global demand, posing downside risks to both growth and inflation in New Zealand.

In contrast, the Fed is widely expected to hold interest rates steady at next week's meeting, backed by robust US economic data and persistent inflationary pressure. Markets are currently pricing in 43 basis points of rate cuts by the end of 2025, with reductions expected in September and December.