Insights 
VT 
The NZD/USD pair fell to around 0.5695 in the Asian session. Chinese RatingDog Manufacturing PMI data showed a drop to 50.6 in October, missing the forecast of 50.9 and impacting the New Zealand Dollar due to China’s significant trade relationship with New Zealand.
The Federal Reserve has reduced interest rates to a range between 3.75% and 4.00%. However, Chair Jerome Powell remarked that future rate reductions are uncertain, decreasing the likelihood of another rate cut in December from 93% to 70%, which has strengthened the US Dollar.
Impact of US Government Shutdown
The US government shutdown is continuing and may set a record for duration, potentially affecting the USD and limiting NZD/USD losses. The value of the New Zealand Dollar is influenced by economic health, central bank policies, Chinese economic performance, and dairy prices, its main export.
The Reserve Bank of New Zealand focuses on maintaining an inflation rate of 1% to 3%. The bank adjusts interest rates to manage the economy, impacting NZD through the appeal of higher investment yields. Economic data shows that strong economic conditions bolster NZD, while broader risk sentiment affects its strength during market stabilisation or turbulence.
We see the NZD/USD pair extending its decline below the 0.5700 level, creating an opportunity for short positions. The latest Chinese manufacturing data disappointed, reinforcing concerns about demand from New Zealand’s largest trading partner. This sentiment was echoed in last week’s Global Dairy Trade auction, where whole milk powder prices slipped by 2.1%, marking the third consecutive drop.
Federal Reserve’s Influence on USD
The Federal Reserve’s hawkish stance is providing significant strength to the US dollar. We’ve seen the market rapidly reprice the odds of a December 2025 rate cut down to 70%, which should continue to weigh on the NZD/USD. This shift suggests that options traders might consider buying puts to protect against further downside or to speculate on a break below key support levels.
However, the ongoing US government shutdown, now in its sixth week, is a key factor that could limit the US dollar’s gains. We recall how the prolonged shutdown in late 2018 and early 2019 eventually led to a dip in consumer confidence and a softer dollar. A recent estimate from the Congressional Budget Office suggested the current stalemate is already trimming 0.2% off Q4 2025 GDP growth, which could cap the greenback’s upside.
In the coming weeks, we will be closely watching comments from Fed officials, starting with Governor Bowman’s speech later today, for any change in tone. Domestically, New Zealand’s upcoming Q3 labor market data will be critical for gauging the Reserve Bank of New Zealand’s next move. A weak jobs report could further cement expectations that the RBNZ will remain on hold, adding another layer of pressure on the Kiwi.
