Insights 
VT 
The NZD/USD pair fell to near 0.5640, its lowest point since April, during the early Wednesday Asian session. This decline coincides with New Zealand’s unemployment rate rising to 5.3% in Q3, the highest in nine years. Statistics New Zealand reported that employment remained unchanged, falling below the expected 0.1% increase.
The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate by 300 basis points since August last year, now at 2.5%. Further cuts of 25 basis points are anticipated at the next meeting on November 26. Despite positive developments in US-China trade talks, the prolonged US government shutdown’s impact on the economy might affect the Greenback’s strength against the NZD.
Impact on the New Zealand Dollar
The New Zealand Dollar’s value is influenced by the country’s economic health and central bank policy. The Chinese economy’s performance and dairy prices significantly impact NZD, as China is New Zealand’s major trading partner, and dairy export is crucial. Macroeconomic data indicating high growth, low unemployment, and strong confidence supports NZD, while risk sentiment affects its performance as NZD strengthens during risk-on periods.
Given the slide in NZD/USD below 0.5650, our immediate focus is on the weak New Zealand labor market. The unemployment rate hitting 5.3% is a significant development, confirming a deteriorating trend we have watched since rates were in the low 4s back in 2024. This weak domestic data provides a strong reason to expect further downside for the Kiwi, making put options an attractive strategy.
The Reserve Bank of New Zealand’s dovish stance is the next key driver for us to watch. With an expected interest rate cut on November 26, the policy divergence with the US Federal Reserve is set to widen. Derivative markets are already pricing in an over 80% probability for this cut, suggesting that short positions against the Kiwi are becoming a consensus trade.
US Economic Outlook
While the prolonged US government shutdown introduces some uncertainty for the US dollar, we are more focused on incoming economic data. The upcoming US ISM Services PMI, which has consistently stayed above the 52 level for much of the past year, could reinforce the theme of US economic outperformance. A strong reading would likely overshadow shutdown-related noise and add further weight to the NZD/USD pair.
The positive news on the US-China trade front is a factor, but we believe its ability to support the Kiwi is limited. This reminds us of past periods where a dovish RBNZ has been the dominant force, overpowering general risk sentiment. The direct impact of a rate cut is likely to be a more powerful driver for the currency than the indirect benefit of improved trade relations.
