Read Time: 12 minutes

Central banks around the world are no longer moving in tandem. In 2025 we see a clear interest rate divergence: some economies are cutting interest rates to support growth while others keep rates high or even hike them. For forex traders, these policy differences are a big deal. They create shifts in currency values and fresh trading opportunities. This article breaks down what interest rate divergence means, why it matters for FX, how major central banks like the Fed, ECB, RBA, and RBNZ are charting different paths this year, and what it all means for currency pairs like NZD/USD, AUD/USD, AUD/NZD, and EUR/USD.

What Is Interest Rate Divergence (and Why Traders Care)

"Interest rate divergence" simply means central banks are going in different directions with their monetary policy. One bank might be raising or holding rates, while another is cutting rates. These differences matter because interest rates heavily influence currency demand. In general, higher interest rates tend to attract foreign capital seeking better returns, boosting demand for that currency and causing it to appreciate, while lower rates can have the opposite effect​.

For example, if New Zealand's interest rates fall well below U.S. rates, holding money in NZ dollars becomes less attractive relative to U.S. dollars. Traders respond by moving capital accordingly – a dynamic that shifts exchange rates. Diverging interest rates can also spur carry trades (borrowing in a low-rate currency to invest in a high-rate one), further strengthening high-yield currencies.

Diverging Central Bank Paths in 2025

The start of 2025 has made one thing clear: the world's major central banks are not on the same page. Economic conditions vary across regions, so policymakers have taken different monetary paths – from aggressive easing to cautious pauses and even tightening. According to Reuters, early 2025 saw the United States holding rates steady, the euro zone cutting rates, and outlier Japan hiking – a sharp change from 2024 when most banks were easing in unison​. Let's look at the distinct approaches of four key central banks and the reasons behind them:

Federal Reserve (USA) – Cautious Hold at High Rates

The U.S. Federal Reserve (Fed) entered 2025 with interest rates at multi-year highs and has opted to hold them steady for now. After a series of rate hikes in 2022–2023 to fight inflation (and a few modest cuts in late 2024), the Fed's benchmark rate is sitting around 4.25%-4.50%​. Fed Chair Jerome Powell has signalled no rush to cut rates again until inflation is convincingly back to target and the labour market cools​. 

The U.S. economy has remained surprisingly strong, with solid growth and only "somewhat elevated" inflation, so the Fed is being very cautious about easing policy too quickly​. In December, Fed officials even revised their forecasts, indicating they expect only two small rate cuts in 2025 (down from four expected earlier)​. By keeping U.S. rates high relative to others, the Fed is supporting the dollar's value – a point we'll see reflected in currency moves like EUR/USD.

European Central Bank (Eurozone) – Pivoting to Rate Cuts

Across the Atlantic, the European Central Bank (ECB) is taking the opposite route. With eurozone inflation finally coming under control (somewhat) and growth fading, the ECB has pivoted to cutting rates in order to strengthen the economy. They cut in late January, by 25 basis points – its fifth consecutive cut since mid-2024​. This, in turn, brought the deposit rate down to about 2.75%​. Notably though, ECB policymakers have kept more easing on the table, reflecting confidence that euro-area inflation is headed firmly toward the 2% target​.

In fact, markets have been pricing in multiple further ECB cuts in 2025 (around three more 0.25% reductions) as the eurozone economy struggles to gain some momentum​.

Reserve Bank of Australia (RBA) – Tentative First Cuts

Locally, the RBA has been easing policy in this year, but very gradually. The RBA had kept its cash rate unchanged for over a year (after aggressive hikes earlier) as it waited for inflation to cool. By the end of last year, signs emerged that Australia's inflation was finally back within the RBA's 2-3% target band. With price pressures easing, the RBA cautiously delivered its first rate cut of this cycle in February, trimming the cash rate by 0.25% to 4.10%. This was the RBA's first cut since the depths of the 2020 pandemic, officially ending a long pause in policy.

However, policymakers have been explicit that they are not in a rush to slash rates dramatically. RBA Governor Michele Bullock emphasised that February's cut "does not imply" a series of rapid future cuts and that the Board needs to see continued declines in inflation before easing further​.

In fact, she pushed back against market expectations of multiple cuts, calling those bets "unrealistic"​. The RBA has effectively "joined its G10 peers in cutting rates," but as a late-comer with a cautious outlook​. Australia's strong labour market gives it leeway to move slowly​.

Reserve Bank of New Zealand (RBNZ) – Aggressive Easing to Support Growth

New Zealand's central bank stands out as one of the most dovish in 2025. The Reserve Bank of New Zealand (RBNZ) began cutting rates ahead of most peers and has been more aggressive in easing. Since August 2024, the RBNZ has slashed its Official Cash Rate (OCR) by a total of 175 basis points, bringing it down to 3.75% as of February this year​. The reason behind this sharp dovish turn is clear: inflation in NZ has cooled into the RBNZ's 1-3% target range, but economic growth had turned negative. Our friends across the ditch had fallen into a mild recession in 2024, and demand in the economy has been very weak. The RBNZ determined that an "extended period of restrictive rates" had done its job bringing inflation down (NZ CPI was ~2.2% by end-2024) and that it was time to stimulate growth​. By cutting rates quickly, RBNZ policy makers hope to cushion the downturn and engineer a recovery.

This proactive easing stance is in stark contrast to the Fed and RBA's caution​. Not surprisingly, the NZ dollar (NZD) has weakened with these moves. When the RBNZ delivered the surprise 50 bp cut in February, it "dented the New Zealand dollar," which dropped as traders priced in NZ's lower yield outlook​. Overall, New Zealand's policy divergence – a rapid shift to lower rates – exemplifies how a central bank's dovish turn can affect its currency.

Figure: Change in policy rates by major central banks (Mar 2024 vs Feb 2025). Orange dots indicate central banks (like New Zealand, Canada, Eurozone, etc.) that have cut rates; yellow shows those that held steady (e.g. the U.S. Fed), and purple indicates rate hikes (e.g. Japan). Diverging policies are evident, with the RBNZ and ECB easing while the Fed stands pat and the Bank of Japan tightens​.

Actionable Ideas for 2025

Global interest rate divergence has become a defining theme for forex in 2025. The Fed and RBA are cautiously standing pat or easing only slightly, whilst the ECB and RBNZ are more aggressively cutting rates to combat economic weakness. These divergent paths have shifted interest rate differentials, in turn driving notable moves in FX markets – a stronger U.S. dollar relative to the euro, Aussie, and Kiwi; a surging AUD against a soft NZD; and other carry trade dynamics playing out.

Here's some actionable ideas to think about:

Follow Central Bank Signals: Keep a close eye on central bank meetings, statements, and economic data. A hawkish comment from the Fed or a dovish surprise from the RBA/ECB can quickly alter currency movements.

Trade the Differentials (Carry Trades with Caution): Divergent rate policies mean some currencies offer higher yields than others. Traders can seek opportunities by going long currencies with higher or rising rates and shorting those with falling rates, effectively capturing the interest differential. For example, as we saw, AUD/NZD benefited from Australia's higher relative rates, and USD generally strengthened against lower-rate currencies. This carry trade approach can generate profits both from exchange rate moves and from interest rate accrual.

Be Mindful of Volatility: Policy divergence can lead to trending markets but it can also cause volatility around economic releases. When central banks diverge, every key data point (jobs reports, inflation prints, GDP figures) that might influence their next move can jolt the market.

Look for Confirmation of Trend Changes: Whilst riding a divergence-driven trend can be profitable, remember that these trends eventually evolve. If later in 2025 the Fed starts signalling rate cuts or the ECB slows its easing, the gap may begin to close. Regularly re-evaluate the fundamental story.

Conclusion

Global interest rate divergence is reshaping forex markets in 2025, creating clear winners and losers among currencies. By understanding each central bank's policy trajectory and its impact on currency pair interest differentials, even beginner and intermediate traders can better navigate the trends. Keep an eye on the data and use this knowledge to make informed trading decisions.

Whether you're capitalising on USD strength, taking a carry trade, or managing risk on a volatile EUR/USD, the key is to align your strategies with the underlying interest rate story. As always, combine fundamental insights with sound risk management. Interest rate divergence is offering opportunities – and with the right approach, forex traders in 2025 can position themselves to take advantage of these global shifts in monetary policy.

Read time: 3 minutes.

Read Time: 6-7 minutes

Essential Ratios Every Beginner Trader Should Know. The Fibonacci sequence and the golden ratio have long fascinated mathematicians, scientists, and artists. Their influence extends across every aspect in life and can be observed in nature, architecture, and even the financial markets. Fibonacci-based tools are readily available and can assist in identifying entry and exit points, retracement lengths and more.

   

What is Fibonacci and Why Does It Matter in Trading?

   

The Fibonacci sequence consists of a series of numbers where each value is the sum of the two preceding numbers, starting from 0 and 1. For example, 1+1=2, 1+2=3, 2+3=5, and so on. When we continue this pattern we get:

   

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233...

   

Taking it one step further, if we observe the mathematical correlations between these numbers, we identify a range of ‘ratios’. For example, if we divide 21 by 34, we get 0.618%. If we divide 21 by the number two spots to the right (55), we get 38.2 and so on.

   

This mathematical constant appears in various natural and human-made structures, from spiral galaxies to architectural designs, and even nature.

In trading, Fibonacci ratios can help analyse price action, pinpointing areas where market trends may pause, reverse, or accelerate. By learning to apply these ratios, you can identify potential support and resistance levels, retracement zones, and projected price targets, ultimately giving you better entries and exits on your trades.

   

Breaking Down the Key Fibonacci Ratios

   

The most widely used Fibonacci ratios in forex trading originate from the relationships between sequence numbers. As an example, some of the most commonly used in trading include:

   

     
• 23.6% – A minor retracement level often observed in strong trends.
     
• 38.2% – A commonly used retracement level where price corrections may occur.
     
• 50% – Not an official Fibonacci ratio, but significant due to psychological factors.
     
• 61.8% – The golden ratio, a crucial level for support and resistance.
     
• 78.6% – A deeper retracement level where strong reversals may occur.
     
• 161.8% – A common extension level used to forecast potential price targets.
   

   

These ratios are applied using Fibonacci retracements and extensions.

   

How to Use Fibonacci Retracements

 

Read time: 3 minutes.

Indicative Dividend Adjustments for Indices: Week Starting March 31st, 2025.

* Please note these figures are quoted in the index point amount and are subject to change

What is a dividend?

Dividends are a portion of company earnings given to shareholders. As indices are often composed of individual shares, an index dividend pays out based on individual shares proportional to the index’s weighting.

Trading on a CFD Index does not create any ownership of the underlying stocks, or an entitlement to receive the actual dividends from these companies.

What is an ex-dividend date?

An ex-dividend date is the cut-off date a share must be owned in order to receive a dividend. If an investor buys a share after the ex-dividend date, then they will not be entitled to earn or pay the next round of dividends. This is usually one business day before the dividend.

Do dividends affect my position?

Share prices should theoretically fall by the amount of the dividend. If the company has paid the dividend with cash, then there is less cash on the balance sheet, so in theory, the company should be valued lower (by the amount of the dividend).

Due to the corresponding price movement of the stock index when the ex-dividend date is reached, Fusion must provide a 'dividend' adjustment to ensure that no trader is positively or negatively impacted by the ex-dividend event.

How will the dividend appear on my account?

The dividend will appear as a cash adjustment on your account. If your base currency is different from the currency the dividend is paid out in, then it will be converted at the live FX rate to your base currency.

Why was I charged a dividend?

Depending on your position, given you are holding your position before the ex-dividend date, you will either be paid or charged the amount based on the dividend. Traders shorting an index will pay the dividend, whereas traders who are long the index will be paid the dividend.

Why didn’t I receive my dividend?

You may not have received a dividend for a number of reasons:

- You entered your position after the ex-dividend date

- You are trading an index without dividend payments

- You are short an index

If you believe the reasons above do not apply to your position, please reach out to our support team at [email protected] and we’ll investigate further for you.

1. The U.S. Dollar’s Strength and Global FX Implications 
   
   

2. Carry Trade Opportunities in High-Yielding Currencies 

3. The Euro’s Structural Weakness and Political Uncertainty 

Figure 1 – EURJPY Weekly Chart 

Figure 2 – Euro Volatility Index, daily chart 

4. Commodity Currencies 

Figure 3 – XAUUSD (gold), daily chart 

5. Geopolitical Crossroads and FX Volatility 

Figure 4 – USDCNH, weekly chart 

Final Thoughts 

Read Time: 5 Minutes

We are always listening to our community and striving to improve our trading experience. Today, we’re excited to announce the launch of our newly revamped ‘Refer a Friend’ program, offering greater rewards and flexibility for sharing Fusion Markets with your Friends. Terms and Conditions apply. 

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