The NZD/USD pair is experiencing slight losses, trading around 0.5790 during the Asian hours on Wednesday. The dip follows a 5.8% monthly rise in New Zealand’s Building Permits for August, slightly higher than the previous month’s 5.3% increase.

Compounding the NZD/USD challenges is the impending US federal government shutdown due to lapsing funding at 04:00 GMT on Wednesday. Around 750,000 employees face furloughs as Congress has yet to pass funding bills, affecting data releases like the monthly jobs report.

US Dollar Market Expectations

Despite this, the US Dollar remains subdued, as softer US jobs data raises expectations for Federal Reserve rate cuts. The CME FedWatch Tool signals a 97% chance of an October rate cut and a 76% possibility for December.

Job Openings data reveals a slow labour market in the US, with vacancies slightly up to 7.23 million in August, while hiring dropped to 3.2%. The New Zealand Dollar is significantly influenced by China’s economic performance and dairy prices due to its trade reliance.

The Reserve Bank of New Zealand targets an inflation rate between 1% and 3%, adjusting interest rates to control inflation and influence bond yields, impacting the NZD/USD pair. Macroeconomic data in New Zealand can also sway the NZD’s valuation based on economic strength.

With the US government shutdown beginning today, we anticipate a period of higher volatility and lower liquidity. The suspension of key data releases, most notably the monthly jobs report, will leave markets navigating without a crucial economic guide. This uncertainty means traders should be prepared for erratic price movements driven by headlines rather than fundamentals.

Strategies for Traders

The dominant theme for the US Dollar is the Federal Reserve’s dovish pivot, with markets pricing in a near-certainty of a rate cut this month. This stands in contrast to the Reserve Bank of New Zealand, which is dealing with more persistent domestic inflation, last recorded at 3.5% year-over-year for the third quarter of 2025. This growing policy divergence should provide underlying support for the NZD/USD pair.

Given the unclear directional bias caused by the shutdown, derivative traders might consider strategies that profit from an increase in volatility. Buying options, such as straddles or strangles, could be effective in capturing a significant price swing once the shutdown ends and data releases resume. We believe this is more of a time to trade volatility than to take a firm directional view.

However, the New Zealand Dollar faces its own headwinds, which could cap any significant rally. China’s fragile economic recovery, evidenced by the latest Caixin Manufacturing PMI holding just above the 50 expansion threshold, continues to weigh on the Kiwi. Furthermore, recent Global Dairy Trade auctions have shown only modest price gains, offering little fresh impetus for New Zealand’s largest export.

Looking at past government shutdowns, such as the one in late 2018, the US Dollar often experienced choppy, sideways trading before a clear trend emerged upon resolution. Therefore, our core view is to look for opportunities to position for US Dollar weakness, but to do so cautiously. Using any shutdown-induced panic that strengthens the US Dollar as a chance to enter long NZD/USD positions could prove prudent once the political situation stabilizes.

Create your live VT Markets account and start trading now.