New Zealand Dollar strengthens above 0.5650 on US-China truce extension

The New Zealand Dollar (NZD) has strengthened to around 0.5665 during Asian trading hours on Monday, supported by positive developments in US-China talks. China's Commerce Ministry announced that the trade truce with the US will be extended until January 2027, while Beijing and Washington agreed to establish a China-US Trade Council and create a communication channel for AI incidents.

Hawkish signals from Federal Reserve (Fed) policymakers have bolstered expectations of a rate hike, potentially boosting the US dollar. Cleveland Fed President Beth Hammack noted that inflation risks remain high and restrictive monetary policy should continue. Richmond Fed President Tom Barkin and Boston Fed President Susan Collins also supported the recent rate hike due to concerns about inflation.

Traders estimate a 65.9% probability of a Fed rate hike in October and a 94.3% chance in December. Brown Brothers Harriman strategists highlighted that the NZD is "outperforming most major currencies" following hawkish remarks from Reserve Bank of New Zealand (RBNZ) Governor Anna Breman, increasing the likelihood of a 25 basis point hike at the October 28 meeting from 57% to 73%.

NZD's Q3 CPI release on October 21 will be closely watched, with the RBNZ forecasting inflation to ease to 3.9% y/y from 4.1% in Q2. Fed policymakers' message, while moderately hawkish, still indicates a firm anti-inflation stance. The FXS Fed Sentiment Index, at 147.72, remains well above the neutral 100 mark, showing that Fed communication is firmly in the hawkish territory even though the tone has softened slightly from the recent baseline.

The NZD/USD pair is showing a mildly bullish bias near-term, as it remains above the 100-period moving average and the Bollinger middle band, with price nearing the upper Bollinger band resistance around 0.5669. Support levels are identified at the 100-period moving average (0.5662), Bollinger middle band (0.5658), and the lower band (0.5645).

On the upside, immediate resistance is at the upper Bollinger band (0.5670), with further gains possible if the price breaks above this level, while a decline could trigger a pullback toward support.