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NZ dollar falls before NZ First's announcement on new government

Thursday 19th October 2017

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The New Zealand dollar fell ahead of an announcement on the formation of the new government, flagged for today, as the market prepares to assess the policy concessions wrung out of the deal by the NZ First Party.

The kiwi dollar slipped to 71.44 US cents as at 8am in Wellington from 71.59 cents late yesterday. The trade-weighted index fell to 75.28 from 75.37.

Traders said the New Zealand dollar may be volatile, short term, in the wake of the announcement. A deal with the Labour Party may see the kiwi drop while one with National could see an initial gain. NZ First said yesterday that it intended to reveal the results of its negotiations with Labour and National today, and that leader Winston Peters had given a heads up to Bill English and Jacinda Ardern.

"Markets will no doubt be on tenterhooks today until we get some political clarity," Philip Borkin, senior economist at ANZ Bank New Zealand, said in a note. "The initial reaction could be large, but whether it is sustained will depend on the nature of policy concessions and the perceived stability of any arrangement."

Borkin said beyond politics he expects the kiwi dollar to weaken because "it is clear that some of the kiwi’s previous supports have started to fade."

That includes ANZ and Bank of New Zealand cutting their milk payout forecasts in the wake of this week's dairy auction.

Also out today is Australian employment data for September and third-quarter business confidence, and in China, third-quarter gross domestic product and retail sales and industrial production for September.

The kiwi fell to 54.13 British pence from 54.29 pence yesterday and declined to 91.03 Australian cents from 91.16 cents. It traded at 4.7336 yuan from 4.7317 yuan and rose to 80.63 yen from 80.34 yen. It fell to 60.63 euro cents from 60.82 cents.


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