NZD/USD recovers to near 0.5750 as US government shutdown continues

• NZD/USD rebounds to around 0.5750 in Friday’s early Asian session.

• The US government shutdown has entered its tenth day, owing to a failure by Congress to agree on a new budget.

• The RBNZ cut interest rates more aggressively than expected and is open to further reductions. 

The NZD/USD pair recovers some lost ground near 0.5750, snapping the three-day losing streak during the early Asian trading hours on Friday. Ongoing US government shutdown undermines the US Dollar (USD) against the New Zealand Dollar (NZD). The preliminary reading of the U-Mich Consumer Sentiment report will be released later on Friday. 

Senators struggle to find a way forward as the US government shutdown enters its tenth day. The Bureau of Labor Statistics and the Bureau of Economic Analysis have suspended data collecting and reporting, which complicates the Federal Reserve’s (Fed) decision-making on interest rates and businesses' ability to make informed decisions. A prolonged US federal shutdown could drag the Greenback lower and act as a tailwind for the pair in the near term. 

The RBNZ reduced the Official Cash Rate (OCR) by 50 basis points  (bps) to 2.5% from 3.0% at its October meeting on Wednesday and remains open to further reductions. The decision came as a surprise to markets, which had widely expected the RBNZ to cut the OCR by 25 bps. 

Investors are currently pricing in another 25 bps cut at the final meeting of the year in November, with the risk of further reduction early next year, swaps data showed. This, in turn, could exert some selling pressure on the Kiwi against the USD in the near term. 

“Further easing seems likely in November – and perhaps beyond given the reference to future ‘reductions’ in the OCR,” said Kelly Eckhold, chief New Zealand economist at Westpac Banking Corp. in Auckland.