Impact of US Government Shutdown

The US federal government shutdown has now reached its fourth week, making it one of the longest in recent history. The Senate’s rejection of a GOP-backed bill shows that a resolution is not likely soon. This shutdown is causing worries about its effect on the economy, which is also impacting the US Dollar. This Friday, attention will turn to the US Consumer Price Index (CPI), which is expected to show a 3.1% increase year over year. The New Zealand Dollar is affected by New Zealand’s economy, China’s economic performance, and dairy prices. The Reserve Bank of New Zealand (RBNZ) plays a significant role in determining the value of the NZD. Overall market sentiment influences the NZD too, making it stronger during positive times and weaker when uncertainty rises. Recently, easing trade tensions between the US and China have positively influenced the NZD/USD exchange rate. President Trump’s softer stance on tariffs, combined with a planned meeting with President Xi, has removed a major obstacle for the New Zealand Dollar. This change in sentiment suggests that the NZD may gain further strength. The ongoing US government shutdown is putting pressure on the US dollar. Remember the 35-day shutdown from 2018 to 2019? It reduced US GDP by about 0.2%. If the current shutdown continues without a solution, we might see a similar economic impact in Q4 2025. This uncertainty in the US is favorable for the NZD/USD exchange rate.

China’s Economic Influence

Recent positive economic data from China, New Zealand’s biggest trading partner, is also supporting the Kiwi. China’s Q3 2025 GDP grew by 5.1%, surpassing expectations and boosting the outlook for New Zealand’s commodity exports. This further highlights the NZD as a barometer for Chinese economic health. Currently, interest rate differences also benefit the New Zealand dollar. The Reserve Bank of New Zealand has kept its official cash rate steady at 5.50% to tackle ongoing domestic inflation. Meanwhile, the US Federal Reserve is taking a more cautious approach, making the higher-yielding Kiwi more attractive. In this context, buying short-term call options on NZD/USD could be a smart move to potentially profit as the pair approaches the resistance level of 0.5800. Implied volatility in the one-week options market has jumped to 11.2%, suggesting that traders expect significant price changes. However, the upcoming US Consumer Price Index data this Friday poses a major risk. If inflation is reported higher than the anticipated 3.1%, it may strengthen the US dollar and negatively affect the exchange rate. Therefore, we recommend hedging any long positions with protective put options to reduce the risk from a potential hawkish inflation surprise. Create your live VT Markets account and start trading now.

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