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The New Zealand Dollar is plumbing four -month lows against its big US brother as political uncertainty weighs on the kiwi unit.
The currency has been struggling in the wake of September 23’s general election which yielded a “hung parliament,” with no majority for anyone. This in turn left the nationalist New Zealand First party as putative kingmaker, with that majority in its gift for whichever major party it chooses to side with - formerly-ruling National or opposition Labour.
New Zealand First leader Winston Peters has a self-imposed deadline of this Thursday to reach an agreement with one of them, with negotiations ongoing. It’s tempting to suggest that the Kiwi could fall yet further if Peters chooses to unite with Labour. Another National-led administration looked like the bulls’ choice judging by market reaction to polls before the vote.
However, it’s possible that the Kiwi will rise whoever Peters anoints simply because the current uncertainty over the shape of government in Wellington will be removed. While a National-led coalition would probably see a stronger NZD/USD rise, either likely option could see the pair stop falling- at least for the short term- and maybe build a base between current levels and the 0.7200 area where the current slide last paused in mid-September.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
