NZD/USD strengthens on trade optimism, Fed rate cut expectations

• The New Zealand Dollar strengthens, supported by optimism over a trade deal between Washington and Beijing.
• Investors anticipate an interest rate cut from the Federal Reserve this week.
• The US Dollar remains under pressure ahead of the FOMC meeting and the Trump-Xi summit scheduled for Thursday.

NZD/USD holds firm at the start of the week, trading around 0.5760 at the time of writing, up 0.25% on Monday. Improved sentiment between the United States (US) and China is supporting the Kiwi, often viewed as a barometer of Chinese growth.

The world's two largest economies announced that they had reached a framework agreement on trade ahead of Thursday's meeting between US President Donald Trump and Chinese President Xi Jinping. According to US Treasury Secretary Scott Bessent, China agreed to ease restrictions on rare earth exports and purchase significant volumes of US soybeans, in exchange for Trump withdrawing his threat to impose additional 100% tariffs on Chinese goods. China's chief negotiator, Li Chenggang, said that both sides had reached a "preliminary consensus," adding that each country will now go through internal approval procedures.

Easing trade tensions is expected to support demand for commodity and Asia-linked currencies, particularly the New Zealand Dollar (NZD), whose performance is closely tied to China, New Zealand's main trading partner.

On the US side, attention now turns to the Federal Reserve (Fed) monetary policy decision due Wednesday. Markets broadly expect a 25 basis-point rate cut, which would be the second consecutive one, bringing the target range down to 3.75%-4.00%. This dovish outlook continues to weigh on the US Dollar (USD), already weakened by internal debates among Fed policymakers over the future path of rates.

Fed officials remain divided. Some advocate for a quicker easing to counter a softening labor market, while others warn against cutting too aggressively as inflation remains above the 2% target. Any hawkish comments from Fed Chair Jerome Powell following the meeting could temporarily support the Greenback.

Overall, the combination of renewed trade optimism and expectations of lower US interest rates continues to favor the NZD/USD pair, which could remain supported as long as the Fed's dovish stance and constructive dialogue between Washington and Beijing persist.