Insights 
VT 
NZD/USD remains around 0.5750 as traders exhibit caution awaiting the US Consumer Price Index data. The US government shutdown has reached 24 days, contributing to risk aversion and possibly affecting the US Dollar’s performance.
During early European trading, NZD/USD showed minimal movement, having previously registered gains. The delay in US economic data releases due to the government shutdown adds uncertainty to financial markets.
Potential Impact of US China Trade Agreement
The New Zealand Dollar maintains its position due to optimism about a potential US-China trade agreement. Any economic shifts in China could impact the Kiwi Dollar, given the trade relationship between China and New Zealand.
US President Donald Trump anticipates agreements with Chinese President Xi Jinping at an upcoming meeting in South Korea. The meeting is set for October 30th, during the Asia-Pacific Economic Cooperation Summit.
Factors influencing the New Zealand Dollar include the health of its economy, central bank policies, and dairy prices. The Reserve Bank of New Zealand’s decisions on interest rates play a role in determining the currency’s value. Additionally, broader market sentiment can impact the NZD, strengthening during periods of economic optimism.
The caution we saw back in early 2019, when the NZD/USD was struggling around 0.5750, provides a useful lesson for today’s market. Now, with the pair trading much higher around 0.6100, the primary concern is not a data blackout but rather sticky US inflation, which latest figures show is holding at 3.1% annually. This environment calls for a different approach, as the Federal Reserve’s path is now the main driver of uncertainty.
Market Sentiment and Future Strategies
We can recall the 35-day US government shutdown in late 2018 and early 2019, which delayed key economic reports and created chaos. While we are currently watching another round of tense budget negotiations in Washington, the market appears less panicked, having seen these deadlocks resolved before. Therefore, traders should be wary of overcommitting to downside protection and instead look to trade the short-term volatility around negotiation deadlines.
Unlike the optimism surrounding a potential US-China trade deal that supported the Kiwi back then, the current landscape is more complex and less hopeful. Furthermore, New Zealand’s domestic picture shows some weakness, with the latest Global Dairy Trade auction posting a 2.8% price decline and quarterly GDP growth coming in at a tepid 0.4%. These factors suggest that any strength in the New Zealand dollar may be short-lived.
Given this backdrop, we expect implied volatility to remain elevated ahead of upcoming central bank meetings and US inflation data. A viable strategy for the coming weeks could involve buying straddles on NZD/USD to profit from a significant price move in either direction, without betting on the outcome itself. Selling far out-of-the-money puts seems risky until we see a clear recovery in dairy prices or a major improvement in global risk sentiment.
