NZD/USD gathers strength to near 0.5750 on fears of prolonged 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 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.

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.