NZD/USD is dropping as traders assess the impact of the US government shutdown, trade issues, and uncertain monetary policy. The shutdown has entered its third week with no end in sight, marking the third-longest pause in recent history. On a brighter note, easing tensions between the US and China may support the New Zealand Dollar. During European trading hours on Tuesday, NZD/USD dipped to around 0.5720, moving down from gains in the last two sessions. The US Federal Reserve is expected to cut interest rates soon, which could weaken the US Dollar. The CME FedWatch Tool shows a nearly 99% chance of a rate cut in October and a 98% chance in December.

US-China Relations

Talks between the US and China may bring some stability, as President Trump hopes to reach an agreement with President Xi Jinping. However, issues like tariffs and market access remain contentious, with US Trade Representative Jamieson Greer stating that China is engaging in damaging economic actions. The New Zealand Dollar’s value is affected by the health of its economy, decisions from its central bank, and the Chinese economy due to trade ties. Dairy prices are crucial too, as the dairy sector is a significant export area. Changes in interest rates from the Reserve Bank of New Zealand (RBNZ) compared to US rates can greatly influence NZD/USD. Economic data releases are essential for understanding New Zealand’s economic status and its currency value. In positive market conditions, NZD may strengthen as a commodity currency, while in turbulent markets, it may decline as investors seek safer assets.

NZD/USD Dynamics

NZD/USD is experiencing familiar dynamics amid rising uncertainty about the US economy. Recent data shows US Q3 2025 GDP growth is revised down to 1.6%, and the unemployment rate is up to 4.2%. This echoes previous slowdowns, similar to late 2019 when trade and Fed policies were key concerns. Historically, ongoing disputes over government funding and rate cuts have often weighed down the US Dollar. For instance, during the Fed’s rate-cutting phase in late 2019, NZD/USD gained over 7% from its October low as the Greenback weakened. Hence, derivative traders should be cautious about being overly negative on this pair, as signs of US economic weakness could quickly shift the dollar’s recent strength. On the New Zealand side, we should monitor vital economic indicators for any signs of independent strength. The latest Caixin Manufacturing PMI from China is at 50.9, indicating slight growth and providing steady demand for New Zealand’s exports. Additionally, the Global Dairy Trade (GDT) Price Index rose by 1.8% in the latest auction, offering support for New Zealand’s trade terms. With these mixed signals, the implied volatility in NZD/USD options may be underestimated. The CME FedWatch Tool currently suggests a 35% chance of a Fed rate cut in Q1 of 2026, a figure that could jump if more weak data emerges. Traders might consider long straddle strategies to position themselves for a significant market shift once a clearer trend emerges. Create your live VT Markets account and start trading now.

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