NZD/USD rises to nearly 0.5750, fueled by concerns about a long-lasting US government shutdown. This pair has bounced back from around 0.5740, ending a seven-day decline during Thursday’s Asian session. The US government has been in shutdown for three weeks due to the Senate’s failure to approve funding. A Treasury official mentioned that the shutdown might cost the US economy $15 billion each week, which could weaken the US dollar and help NZD/USD.

Chance Of Fed Rate Cuts

Traders see a 98% chance of a 25 basis point interest rate cut by the Fed in October and another by December, according to Reuters. Ongoing trade tensions between the US and China are adding to market worries, as President Trump pointed out rising tensions, even with a possible pause on tariffs suggested by Treasury Secretary Scott Bessent. Any rise in US-China tensions could impact the Kiwi since China is New Zealand’s largest trading partner. Factors affecting the NZD include the state of New Zealand’s economy, central bank policies, and China’s economic health. The Reserve Bank of New Zealand’s inflation targets play a role in interest rates, affecting the NZD’s appeal. Economic data and overall market sentiment are crucial as well. Strong data and positive growth boost the NZD, while uncertainty tends to favor safer assets.

Trading Strategies Amid Volatility

Currently, NZD/USD is testing the 0.5750 mark as the US government shutdown continues. This extended closure is weakening the US dollar, giving the Kiwi a chance to rise. Still, ongoing trade tensions between the US and China limit the Kiwi’s potential growth. A shutdown of this length affects US economic output, as seen in past situations. The Congressional Budget Office estimated that the 35-day shutdown in late 2018 and early 2019 cost the US economy about $3 billion permanently. This history suggests why the dollar is under pressure now and reflects market anxiety. The market almost fully expects the Federal Reserve to take action, with traders pricing in a 98% likelihood of a rate cut this month. This expectation for softer monetary policy poses a challenge for the US dollar. A further rate cut is expected in December, indicating ongoing dollar weakness. Given the risk of sudden new tariffs on China, maintaining a simple long NZD/USD position may be risky. It may be wise to consider options to navigate this uncertainty. For example, buying call options on the NZD/USD can allow for profits from further gains while limiting potential losses if trade developments turn negative. Traders expecting a significant move but unsure of the direction might explore volatility strategies. A long straddle, which involves buying both a call and a put option at the same strike price, could benefit from a major movement in NZD/USD. This shift could occur either with the shutdown’s conclusion or through an escalation in trade conflicts. Create your live VT Markets account and start trading now.

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