NZD/USD is hovering around 0.5750 as traders exercise caution while awaiting US Consumer Price Index (CPI) data. The ongoing US government shutdown, now 24 days long, is causing risk aversion and may impact the US Dollar’s performance. In early European trading, NZD/USD showed slight movement after previously gaining. The delay in US economic data due to the government shutdown adds to uncertainty in the financial markets.

Potential Impact of US-China Trade Agreement

The New Zealand Dollar is holding steady due to hopes for a possible US-China trade agreement. Changes in China’s economy could affect the Kiwi Dollar because of their trade ties. US President Donald Trump expects to make agreements with Chinese President Xi Jinping at a meeting in South Korea on October 30th during the Asia-Pacific Economic Cooperation Summit. The New Zealand Dollar’s value is influenced by its economic health, central bank policies, and dairy prices. The Reserve Bank of New Zealand’s interest rate decisions are key in determining the currency’s worth. Additionally, overall market sentiment can strengthen the NZD during periods of economic positivity. Looking back at early 2019, when NZD/USD struggled around 0.5750, we see a useful comparison for today’s market. Now that the pair is trading higher at around 0.6100, the focus has shifted from data delays to persistent US inflation, which currently stands at 3.1% annually. This shift suggests that the Federal Reserve’s decisions are now central to market uncertainty.

Market Sentiment and Future Strategies

We recall the 35-day US government shutdown at the end of 2018 and early 2019, which also postponed important economic reports and caused market chaos. Although we face another wave of budget negotiations in Washington, traders seem less anxious now, as they’ve seen similar situations resolved in the past. Consequently, traders should avoid over-committing to downside protection and should instead consider trading the short-term volatility around negotiation deadlines. Unlike the earlier optimism about a US-China trade deal that supported the Kiwi, the current situation is more complicated and less promising. Additionally, New Zealand’s domestic outlook shows some weaknesses, such as a 2.8% decline in prices from the latest Global Dairy Trade auction and a modest quarterly GDP growth at 0.4%. These signs suggest any strength in the New Zealand dollar might be temporary. Given this scenario, we anticipate that implied volatility will remain high ahead of upcoming central bank meetings and US inflation data. A possible strategy for the next few weeks is to buy straddles on NZD/USD, which allows for a profit from significant price movement in either direction without wagering on a specific outcome. Selling far out-of-the-money puts seems risky until we see a clear recovery in dairy prices or a significant improvement in global risk sentiment. Create your live VT Markets account and start trading now.

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