Markets braced for waiting game
The New Zealand dollar dropped yesterday as markets entered a lengthy wait for the formation of a new government.
While Saturday’s election delivered a largely anticipated result – National with the largest vote and NZ First holding the balance of power – special votes and the fact Labour and the Greens could also form a coalition with NZ First mean weeks of uncertainty.
When the currency markets opened early yesterday the dollar briefly jumped, but slowly ground lower to be buying about US72.7C at 3:30pm, down more than half a cent.
ASB chief economist Nick Tuffley said markets had entered a ‘‘waiting game’’.
Although the New Zealand dollar was likely to be stronger in the event that National emerged as the likely coalition partner, over greater policy uncertainty from Labour and the Green Party, Tuffley said the impact should not be overstated.
‘‘The reality is we’re not likely to have a dramatic move in markets with either outcome.’’
National has claimed it has the ‘‘moral authority’’ to form a government by virtue of of it gaining the largest share of votes.
UBS economist Robin Clements said there was no constitutional basis for English’s stance.
UBS believed NZ First was still more likely to opt for a coalition with National, although a coalition with the left remained ‘‘plausible’’.
Other economists have pointed to stark differences with National on a wide range of economic issues, from immigration to trade agreements to the approach of the Reserve Bank.
NZ First leader Winston Peters has repeatedly pledged to weaken the New Zealand dollar in a bid to make New Zealand’s exporters more competitive.
BNZ head of research Steven Toplis said Peters’ powers should not be overstated in the negotiations, as either Labour or National could baulk at the prospect of a government which gave too many concessions to NZ First.
Toplis said National was unlikely to make substantial change to the Reserve Bank’s policy targets agreement ‘‘but it might agree to throw in some extra (relatively meaningless) words about the currency’’ as well as having interest rate decisions made by committee.
‘‘They’re not going to target the currency.’’