NZ dollar heading for weekly drop of 2.5% on uncertainty over new govt
By Rebecca Howard
Oct. 20 (BusinessDesk) - The New Zealand dollar continued to fall and was headed for a weekly drop of 2.5 percent as
investors digest news that Jacinda Ardern will be the next prime minister after NZ First leader Winston Peters said he
would support a Labour-led government.
The kiwi dollar was trading at a fresh five-month month low of 69.92 US cents versus 71.29 cents before the announcement
on the new government yesterday. The trade-weighted index fell to 73.71 from 75.18.
Investors are nervous due to the lack of certainty around certain policies and what concessions were made to NZ First.
Ardern named 21 Labour Party ministers Friday but said the portfolios of ministers - including the New Zealand First and
Green Party ministers - would be announced next week.
"The biggest thing is that we don't know what concessions she's given to NZ First around the Reserve Bank Act and a few
other things which have major implications for New Zealand. Immigration as well. None of that has come out yet," said
Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. "Until we see the policy next week, it's hard to
see any bounce in the currency."
Kiwibank chief economist Zoe Walls said there is "significant speculation around the policies expected to be rolled out
by the incoming government, which are due to be unveiled in the coming weeks. In the forefront of our minds is monetary
policy, migration, housing and fiscal policy," she said.
Wallis said the new government is expected to tweak the monetary policy framework toward a dual mandate - possibly via
an amendment to the Reserve Bank Act 1989 and this is likely to mean a measure of full employment being added alongside
an inflation target.
Kelleher said news that the US Senate voted to approve a budget blueprint that will pave the way for Republicans to
pursue a tax-cut package without Democratic support, added to the US dollar strength, further dragging on the kiwi.
"It's a bit of a perfect storm," he said. He expects the New Zealand dollar to push down to around 69-to-69.50 US cents
ahead of any certainty but said there is strong support at 68.50. "That's really the line in the sand," Kelleher said.
He noted, however, the fall is starting to "snowball" against other currencies, with the kiwi trading 79.09 yen versus
80.34 yen and at 89.07 Australian cents from 90.80 cents. It was at 53.33 British pence from 53.96 pence and declined to
4.6309 yuan from 4.7273 yuan and to 59.15 euro cents from 60.40 cents.
New Zealand's two-year swap rate fell 3 basis points to 2.16 percent and 10-year swaps rose 2 basis points to 3.19