- The New Zealand Dollar fell as election results filtered in from its homeland
- The incumbent National Party has the biggest vote share, but no majority
- Let the horse trading begin
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The New Zealand Dollar was lower Monday after the country’s general election returned a hung parliament- one where no single party has an absolute legislative majority.
The incumbent National Party got the highest share of the vote but, short of majority may have to forge a coalition with the nationalist New Zealand First party. By way of added electoral spice it is at least technically possible that an alliance of Labour, the Green Party and New Zealand First could form a government, although National may be a more natural partner for the latter.
All of the above leaves New Zealand First’s leader Winston Peters as probable kingmaker. However, horse trading may yet go on until the official results day on which the final vote count will be made, and possibly beyond even that. Peters has reportedly said that he will decide whom he supports well before the October 12 deadline.
NZD/USD bulls would probably prefer a National-headed coalition judging by previous market reaction to opinion polls. However, the currency probably now faces weeks of reaction to political headlines as the story develops. The pair slipped well below the 0.73 handle as the election news broke and has yet to recover.
Still, on its daily chart the New Zealand Dollar remains above the downtrend channel drawn from its 2017 peaks hit back at the end of July. At present, it looks as though gains are far from safe and that the downtrend could resume, but it may be a mistake to back any trend which appears before the results are known. The next three weeks could seem a lot longer for investors in the kiwi and those who would like to join them.
Politics are making foreign-exchange traders’ work tougher across developed economies, with very close elections now apparently a norm. The UK returned a hung Parliament this year, Donald Trump was elected via his Electoral College performance having lost the popular vote. The New Zealand Result came through just as Germany’s Chancellor Merkel was coming to grips with an election victory which masked losses for her party and gains for the nationalist right.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter:@DavidCottleFX