The NZD/USD pair fell to around 0.5655 in the early Asian trading session on Wednesday. This drop comes as optimism grows about the potential end of the longest US government shutdown, which favors the US Dollar over the New Zealand Dollar.

Impact of US Government Shutdown

The US funding bill to end the shutdown has passed the Senate and is heading to the House for a final vote. If it gets approved, US President Donald Trump is likely to sign it, which could reopen the government. Despite this progress, analysts expect the US central bank to lower rates by the end of the year. The CME FedWatch tool estimates a 68% chance of a Federal Reserve rate cut in December. In October, job creation in the private sector dropped, indicating some weakness in the labor market. The Reserve Bank of New Zealand (RBNZ) reported that inflation expectations hold steady at 2.28% for the next two years based on their Q4 survey. The New Zealand Dollar is affected by the health of New Zealand’s economy and the central bank’s policies. Factors such as China’s economic performance and dairy prices also play important roles because of New Zealand’s trade relationships. Furthermore, when the RBNZ raises interest rates, it usually strengthens the NZD.

NZD/USD Outlook and Influencing Factors

With the NZD/USD near 0.5655, we expect immediate pressure on the pair as the US government shutdown nears its end. This development temporarily boosts the US dollar, making it more appealing than the Kiwi dollar. Traders should be cautious; bearish sentiment on this pair might continue in the coming days. However, we need to focus beyond just the short-term effects of the shutdown. Attention is quickly turning back to the Federal Reserve, with the CME FedWatch Tool showing nearly a 70% chance of a rate cut in December. This expectation of lower rates could limit further gains for the US dollar. Recent signs suggest the US labor market is cooling. For instance, the October ADP private payroll report revealed only 115,000 new jobs, falling short of expectations. This trend supports the idea that the Fed may act sooner rather than later, which could weaken the dollar in the weeks to come. On the other hand, the outlook for New Zealand appears stable but not strong. RBNZ data shows inflation expectations at 2.28%, well within their target. With the Official Cash Rate steady at 5.50%, there’s little pressure for the RBNZ to make a move, making the Kiwi vulnerable to shifts in the US dollar. It’s also important to note that key factors for the Kiwi are not showing notable strength. The latest Global Dairy Trade auction only saw a small price increase of 1.2%, providing limited support. This situation means the NZD/USD’s volatility will depend heavily on upcoming US inflation and job data, which will influence the Fed’s next decisions. Create your live VT Markets account and start trading now.

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