NZD/USD hovers around 0.5640, downside likely on RBNZ rate cut bets

• NZD/USD may lose ground as traders expect the RBNZ to deliver at least a 25-basis-point rate cut in November.
• RBNZ Inflation Expectations held steady at 2.28% QoQ in the fourth quarter, remaining within the 1%-3% target range.
• The US Dollar may gain support from optimism that the US government shutdown is close to being resolved.

NZD/USD remains flat after moving sideways during the early hours, trading around 0.5640 during the European hours on Tuesday. The pair remains subdued as the New Zealand Dollar (NZD) faced challenges following the release of the Reserve Bank of New Zealand (RBNZ) Inflation Expectations, which remained consistent at 2.28% for the quarter-over-quarter (QoQ) in the fourth quarter, within the 1%-3% target range.

The New Zealand Dollar struggles as the survey also indicated that most respondents expect the RBNZ to cut rates later this month. Markets largely anticipate a 25-basis-point rate cut to 2.25%, with a slim 10% chance of a deeper 50-basis-point cut, amid rising job losses and the economy edging toward a second recession.

The NZD/USD pair also received downward pressure as the US Dollar (USD) strengthened due to optimism over the US government shutdown nearing a resolution. The US Senate passed a funding bill in a 60-40 vote, effectively ending the 41-day shutdown, with eight Democrats joining Republicans to advance the measure, which now moves to the House for approval.

On Monday, US President Donald Trump supported a bipartisan deal to end the US government shutdown, signaling a likely reopening within days. Senate Majority Leader John Thune said he expects Trump to sign the bill once Congress passes it.

However, the US Dollar pares its daily gains, potentially driven by growing economic uncertainty in the United States (US), which fueled expectations for a near-term Federal Reserve rate cut. The CME FedWatch Tool shows markets pricing in a 62% chance of a 25 bps rate cut in December.