Insights 
VT 
The NZD/USD exchange rate is hovering above 0.5700, facing limitations under 0.5750. Concerns over a US-China trade war impact the New Zealand Dollar, which is tied to China’s economy. A prolonged US government shutdown and speculation on Federal Reserve rate cuts are providing some support to the pair.
The New Zealand Dollar’s recovery from a six-month low of 0.5685 has stalled. The pair remains largely unchanged within the 0.5700s, maintaining its broader downward trend. Despite the US Dollar’s weakness, the Kiwi Dollar struggles with negative market sentiment due to heightened tensions between the US and China.
Us China Trade Tensions
US-China trade tensions worsened after President Trump declared a trade war, with further strain added by US Treasury Secretary’s critique of a Chinese trade negotiator. A US government shutdown extends into its third week, alongside ongoing cues of Federal Reserve rate cuts, providing some halt to the NZD’s decline.
The New Zealand central bank’s unexpected 50 basis points rate cut and discouraging business data weigh on the currency.
A trade war typically arises from protectionist measures like tariffs, escalating costs. The ongoing US-China conflict began in 2018 and saw tariffs imposed by both nations. The conflict stalled briefly but resumed with Trump’s re-election, leading to renewed economic disruptions.
The risk-off mood is keeping the NZD/USD pair pinned down, creating a tense balance between a weak Kiwi and a nervous US dollar. Renewed US-China trade friction is the main driver, directly impacting the Kiwi as a proxy for Chinese economic health. For context, China’s National Bureau of Statistics reported this week that exports to the US fell over 45% year-over-year in the third quarter.
New Zealand Trade Impact
We see this pressure reflected in New Zealand’s own trade data, as it’s a major supplier of raw materials to China. The latest Global Dairy Trade auction showed a 5.2% drop in whole milk powder prices, a key export, signaling weakening demand. This validates the RBNZ’s dovish stance from earlier this year and suggests little reason for domestic strength to support the currency.
On the other side of the pair, the US dollar is weakened by its own domestic problems, which is providing a floor under the price for now. The ongoing US government shutdown, now in its fifth week, is creating significant economic uncertainty. Markets are now pricing in a 95% probability of a 25-basis-point rate cut at the November Fed meeting to counteract this.
Given this backdrop, we should consider positioning for a breakdown below the current range. Buying put options with strike prices below the critical 0.5700 support level offers a defined-risk way to capitalize on potential downside. This strategy would profit if the pair breaks its recent six-month low of 0.5685.
We have seen a similar pattern before during the 2018-2019 trade tensions, when the Kiwi depreciated over 10% against the dollar over several months. That historical precedent suggests these trade disputes can have a sustained, grinding effect on the exchange rate. This time, with the tariffs being even more aggressive, the potential for a larger move is present.
Implied volatility in NZD/USD options has ticked up, as seen on the CBOE, reflecting the market’s nervousness. This makes selling volatility risky but reinforces the case for buying options to prepare for a sharp move. A break of the current narrow trading range seems more likely than continued sideways action.
