• The New Zealand Dollar trims some gains after hitting dauly highs near 0.5760.
• 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 failed to consolidate at two-week highs above 0.5755 on Wednesday, and trimmed some gains,, although it remains positive on the day after bouncing from support near 0.5700 on Tuesday. 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.