It was the third group one win for McDonald (18).
He won the 2009 New Zealand Oaks on Jungle Rocket at Trentham and the 2008 New Zealand Thoroughbred Breeders' Stakes on Special Mission at Te Aroha.
The Mudgway has been group one since 2003 and it was established as a listed race in 1985 as the Byerley Thoroughbred Stakes.
McDonald's father and mentor, Brett, won the Byerley on Catering King in 1986.
Keep The Peace, who had not raced for four and a-half months, emulated Seachange, who won the Mudgway as a 4yr-old in 2006.
Seachange was having her third start back from a spell and repeated her win in the Mudgway the following year on a similar preparation.
The gelding Xcellent won the Mudgway fresh up as a 4yr-old in 2005.
Older horses to win the race fresh up in the last decade are Starcraft (2004), Miss Potential (2003 at Wanganui), Sunline (2002) and Fritz (2001).
Seachange carried on to win the Stoney Bridge Stakes (now the Windsor Park Plate) (1600m) at Hastings at her next start in 2006 and 2007.
Starcraft and Miss Potential also won the Stoney Bridge, which is the next race on the programme for Keep The Peace, trained by Shaune Ritchie at Cambridge..
"Shaune did a great job.
She felt tremendous," McDonald said.
"Bring on Australia."
McDonald had Keep The Peace in close touch with the race from barrier one and angled her off the inside rail in the run home.
She led near the 200m and lasted by a nose from the fast-finishing Wall Street.
Keep The Peace, who won the Desert Gold Stakes at Trentham in January from an 11-week break, had not raced since the AJC Derby in April.
"I gave her only a short spell and gave her a lot of long, slow work," Ritchie said.
The Windsor Park Plate is on September 18.
It is then planned to campaign Keep The Peace in Melbourne beginning with the group one Turnbull Stakes (2000m), a set weight race at Flemington on October 2.
