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Dollar gains on clear election victory

By Paul McBeth

Monday 10th November 2008

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The New Zealand dollar gained after John Key led the National Party to a decisive victory on Saturday night and amid growing optimism that the credit freeze is thawing as China announces a package to stimulate growth.

National won 45% of the party vote in New Zealand’s election, the highest since MMP was introduced in 1996, and will be able to form a coalition government with Act and United Future with a clear majority in Parliament. China announced a US$586 billion spending plan to bolster its economy and a shift to a “moderately easy” monetary package, mitigating fears of a global recession.

“There’s relief the National government got in,” giving greater certainty than the “potential five-headed monster” of a Labour-led government, said Tim Kelleher, corporate risk manager of ASB Bank.

The kiwi rose to 59.27 US cents from 58.55 cents on Friday, and climbed to 59.08 yen from 57.28 yen. It dropped to 87.94 Australian cents from 88.05 cents. Kelleher said the NZ dollar will likely trade between 59.5 US cents and 60.5 cents.

China’s spending plans may help lift that nation’s economic growth and it “has helped underpin growth-sensitive currencies like the New Zealand dollar,” Danica Hampton, currency strategist at Bank of New Zealand, said.

The prime minister-elect faces an economy in recession. Property prices fell 1% in October, an annual decline of 6.8%, Quotable Value reported. Third quarter retail sales out this week are expected to show the third contraction in a row.

“There is a risk of greater interest rate cuts” as Key looks to shore up the economy, Kelleher said. That could drive the kiwi lower in the medium term, though this is being offset by the weakening economy in America, he said.

General Motors and Ford both posted worse than expected quarterly losses, and GM has warned that unless it secures new funding, its liquidity will fall short.

President-elect Barack Obama has called the automotive industry “essential” to the US economy, but has stopped short of earmarking some of the US$700 billion rescue package to aid carmakers.

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