NZD/USD is trading higher at around 0.5680, up by 0.60%. This rise is due to a weaker US Dollar. Caution is in the air, as key US economic reports are expected after a government shutdown. The US dollar is under pressure, with its index close to a two-week low. Market players have lowered their expectations for a shift to a more dovish stance from the Federal Reserve, despite officials emphasizing the need to tackle rising inflation. However, uncertainty remains because some data releases, such as the Consumer Price Index, may be delayed due to the shutdown.

New Zealand Dollar Gains from Chinese Data

The New Zealand Dollar is benefiting from stronger-than-expected Chinese data, including a 2.9% year-over-year rise in October Retail Sales. Still, NZD’s growth is limited by domestic issues, such as the RBNZ’s 50 basis point cash rate cut and an increase in the Unemployment Rate to 5.3%, the highest in almost nine years. Currently, the NZD’s strength mainly comes from the weakness of the US Dollar, rather than improvements in New Zealand’s economy. Today, NZD has risen by 0.62% against major currencies, performing particularly well against the British Pound. These changes are shown in the heat map of major currency relationships. We view the NZD’s current strength as a temporary reaction to the weakening US dollar. The outlook for the Kiwi remains weak, especially after the Reserve Bank of New Zealand lowered its Official Cash Rate to 4.25% last month. This difference in policy with the Federal Reserve, which has kept its rate steady at 5.00%, indicates that the NZD/USD rebound lacks a solid foundation.

Effects of the US Government Shutdown

The recent US government shutdown has caused significant uncertainty, leading the US Dollar Index to drop to around 104.50 from its October highs. We believe this downward pressure on the dollar will continue until the delayed October CPI and labor market data are made public. History shows that such data delays, like in the 2013 shutdown, can result in increased short-term volatility, making spot trading risky. Given the uncertain outlook, buying NZD/USD put options that expire in late December seems like a smart move. This strategy allows us to profit if the pair trends downward once US data normalizes and attention shifts back to New Zealand’s rising 5.3% unemployment rate. The one-month implied volatility for the pair has already reached over 12%, indicating that the market expects a significant price movement. We’re closely monitoring this rally, particularly near the 0.5750 resistance level, which might signal a good time to enter short positions. Although recent Chinese retail sales provided a slight boost, they are unlikely to counterbalance the impact of New Zealand’s slowing economy, which saw GDP decline by 0.2% in the third quarter of 2025. Currently, the market anticipates a nearly 70% chance of another RBNZ rate cut before year-end, which will likely put further pressure on the Kiwi. Create your live VT Markets account and start trading now.

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