NZD/USD appreciates beyond 0.5750 as the US Dollar rally falters

• The New Zealand Dollar extends gains beyond 0.5750 after bouncing from the 0.5700 area.
• Hopes of a de-escalation of the Sino-US trade rift are providing support to the China-proxy NZD.
• The US Dollar rally loses momentum as the focus shifts to the Fed.

The New Zealand Dollar bounced up from the support area above 0.5700 and has retraced Tuesday's losses to reach intraday highs right above 0.5750 in the early European trading session. Easing Sino-US trade tensions are providing support to the China-Proxy NZD, while hopes of back-to-back interest rate cuts by the Fed are weighing on the US Dollar.

Markets have welcomed signals towards the de-escalation of tension with China by US President Donald Trump, who showed optimism about the possibility of reaching a fair deal with Chinese President Xi Jinping at their meeting in South Korea next week.

Fed rate cuts come into focus

Beyond that, investors are starting to position for next week's Fed monetary policy meeting. A 25 basis points rate cut is practically written in stone, with another one in December seen as highly likely, according to a survey released by Reuters on Tuesday that also revealed concerns that the US central bank might go too far with monetary easing.

Meanwhile, the US government shutdown is in its fourth week with no end in sight. The US Senate failed to find a way to restore funding for the 11th time on Monday. Trump refused to meet Democratic lawmakers on Tuesday, suggesting that this will be one of the longest shutdowns in history.

This is weighing on the US Dollar, while the New Zealand Dollar drew support from the resilient data from China the acceleration of New Zealand's inflationary pressures. These figures, however, did not change the view that the RBNZ will be forced to cut rates further before the end of the year to support a softening economic growth.