Insights 
VT 
NZD/USD is declining as traders weigh the effects of the US government shutdown, trade tensions, and monetary policy uncertainty. The shutdown is now in its third week with no visible resolution, marking the third-longest lapse in modern history. Meanwhile, easing US-China tensions might provide some backing to the New Zealand Dollar.
During European trading hours on Tuesday, NZD/USD approached 0.5720, declining from gains seen in the prior two sessions. The US Federal Reserve is likely to cut rates, which could pressure the US Dollar, with nearly a 99% chance of such a move in October and a 98% probability in December, according to the CME FedWatch Tool.
US-China Relations
US-China relations might stabilise with upcoming talks, where President Trump anticipates reaching an agreement with President Xi Jinping. Persistent tensions over tariffs and market access remain unresolved, as US Trade Representative Jamieson Greer claims China engages in adverse economic actions.
The New Zealand Dollar is influenced by the domestic economy’s health, central bank policies, and the Chinese economy due to trading relations. Dairy prices also impact its value, as the dairy industry is a key export sector. Changes in RBNZ interest rates and comparisons with US rates significantly affect NZD/USD.
Economic data releases help gauge New Zealand’s economic condition and influence the currency’s value. In optimistic markets, NZD may strengthen as it is a commodity currency, whereas market turbulence sees it weaken as investors shift to safer assets.
NZD/USD Dynamics
We are seeing a familiar dynamic in NZD/USD as uncertainty around the US economic outlook grows. Looking at the latest data, with US Q3 2025 GDP growth being revised down to 1.6% and the unemployment rate ticking up to 4.2%, the situation echoes past periods of US slowdown. This reminds us of similar conditions in late 2019 when concerns over trade and Fed policy dominated market sentiment.
Historically, sustained government funding disputes and the prospect of rate cuts have eventually weighed on the US Dollar. For instance, during the Fed’s cutting cycle in the second half of 2019, NZD/USD rallied over 7% from its October low as the Greenback weakened. Derivative traders should therefore be cautious about being overly bearish on the pair, as a confirmation of US economic weakness could quickly reverse the dollar’s recent strength.
On the New Zealand side, we must watch its key economic drivers for any independent strength. China’s latest Caixin Manufacturing PMI reading of 50.9 indicates a slight expansion, providing a stable, if not booming, source of demand for New Zealand’s exports. Furthermore, the Global Dairy Trade (GDT) Price Index has risen by 1.8% in the most recent auction, offering some support for the Kiwi’s terms of trade.
Given this backdrop of conflicting signals, implied volatility in NZD/USD options may be underpriced. The CME FedWatch Tool is currently indicating a 35% probability of a Fed rate cut in the first quarter of 2026, a number that could rise quickly with more weak data. Traders could consider using strategies like long straddles to position for a significant move in either direction once the market picks a clearer trend.
