NZD Extends Gains as Dollar Softens on Diminished Fed Rate Hike Bets

The New Zealand dollar extended its advance against the US dollar on Friday, trading near 0.5981, in the highest zone since late May. Broad dollar weakness is the primary driver behind this NZD uptrend, as market bets on further Federal Reserve rate hikes have notably cooled.

**Fading Rate Hike Expectations Weigh on Dollar**

According to Bloomberg, investors are trimming bets on further Fed tightening, with the dollar index falling to a three-month low. Markets now price in only about 36 basis points of additional hikes in this tightening cycle, and options markets signal greater near-term pressure on the dollar, with one-month options turning bearish on the greenback for the first time since late February. Goldman Sachs, meanwhile, argues that market expectations for Fed rate hikes remain overly aggressive, suggesting further downside correction for the dollar ahead.

**NZD Also Finds Its Own Support**

Beyond dollar weakness, the New Zealand dollar has drawn some support of its own. Market reports indicate that earlier expectations of Reserve Bank of New Zealand rate hikes helped the NZD stabilize around 0.5800, with options positioning showing bullish structures such as longs and bull call spreads near that level. However, the current exchange rate has risen to 0.5981, clearly above the prior stabilization zone, shifting near-term focus to whether the dollar's weakness can persist.

**Key Events Ahead**

Chris Turner, head of global markets at ING, noted that the key event this week is the release of the July Federal Open Market Committee meeting minutes. He believes that if the minutes show the vote split on holding rates steady was closer than most expect, markets will find it hard to pivot back to a fully hawkish stance, which could further pressure the dollar and provide support for non-USD currencies like the NZD.