NZD/USD gathers strength to near 0.5750 on fears of prolonged US government shutdown

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The NZD/USD pair recovers some lost ground around 0.5740, snapping the seven-day losing streak during the Asian trading hours on Thursday. The US Dollar (USD) edges lower against the New Zealand Dollar (NZD) amid the ongoing US government shutdown.

NZD/USD strengthens to near 0.5740 in Thursday’s Asian session.
Republicans and Democrats brace for a long government shutdown, as the Senate failed to advance legislation that would restore funding.
Trade tensions between the US and China intensify, which could weigh on the China-proxy Kiwi.

The US government shutdown has entered its third week on Wednesday after the Senate failed to advance legislation that would restore funding. A US Treasury official noted a US government shutdown could cost the US economy $15 billion per week. A prolonged US federal shutdown could drag the Greenback lower and create a tailwind for the pair in the near term.

Traders are currently pricing in nearly a 98% chance of a 25 basis points (bps) Fed rate cut in October, followed by another reduction in December, which is fully priced in, according to Reuters.

Market sentiment weakens due to the continuing trade tensions between the United States (US) and China. US President Trump said on Wednesday that trade tensions with China remain high, even though Treasury Secretary Scott Bessent suggested that an extension of the tariff pause between the US and China was possible. On Tuesday, US Trade Representative Jamieson Greer noted that the Trump administration could slap China with 100% tariffs on November 1 or sooner, depending on Beijing’s next action in a dispute over rare earths.

Trump still plans to meet with Chinese President Xi Jinping later this month. Any signs of escalating trade tensions between the world’s two largest economies could undermine the China-proxy Kiwi, as China is a major trading partner for New Zealand.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.

How do decisions of the RBNZ impact the New Zealand Dollar?

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

How does economic data influence the value of the New Zealand Dollar?

Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.

How does broader risk sentiment impact the New Zealand Dollar?

The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.