The NZD/USD pair dropped to about 0.5695 during the Asian session. The Chinese RatingDog Manufacturing PMI for October fell to 50.6, below the expected 50.9, which negatively impacted the New Zealand Dollar due to New Zealand’s close trading ties with China. The Federal Reserve has lowered interest rates to a range of 3.75% to 4.00%. However, Chair Jerome Powell said it’s unclear if rates will continue to fall, reducing the chances of another cut in December from 93% to 70%. This has strengthened the US Dollar.

Impact of US Government Shutdown

The US government shutdown continues and could become one of the longest in history. This situation may affect the USD and help limit losses for NZD/USD. The New Zealand Dollar’s value is shaped by economic health, central bank policies, China’s economy, and dairy prices, its primary export. The Reserve Bank of New Zealand aims for an inflation rate of 1% to 3%. The bank changes interest rates to manage the economy, which influences the NZD by making investments more attractive when yields are higher. Economic data shows that a strong economy supports the NZD, while overall market sentiment can affect its strength, especially during times of stability or unrest. The NZD/USD pair appears to be falling further below the 0.5700 level, presenting an opportunity for short positions. Recent Chinese manufacturing data was disappointing and raised concerns about demand from New Zealand’s top trading partner. This worry was echoed in last week’s Global Dairy Trade auction, where whole milk powder prices fell by 2.1%, marking the third drop in a row.

Federal Reserve’s Influence on USD

The Federal Reserve’s strong stance is giving a significant boost to the US dollar. The market has quickly adjusted, reducing the odds of a December 2025 rate cut to 70%, which is likely to continue pressuring the NZD/USD. This change indicates that options traders may look to buy puts to guard against further declines or bet on a break below critical support levels. However, the ongoing US government shutdown, now in its sixth week, could limit the US dollar’s gains. In the past, a prolonged shutdown, like the one in late 2018 and early 2019, impacted consumer confidence and weakened the dollar. A recent estimate from the Congressional Budget Office suggested that this current stalemate is already reducing Q4 2025 GDP growth by 0.2%, which could limit further gains for the greenback. In the coming weeks, we will pay close attention to comments from Fed officials, starting with Governor Bowman’s speech later today, for any changes in their tone. Back in New Zealand, the upcoming Q3 labor market data will be crucial for predicting the Reserve Bank of New Zealand’s next actions. A weak jobs report could strengthen expectations that the RBNZ will keep rates on hold, which would add more pressure on the Kiwi. Create your live VT Markets account and start trading now.

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