Dollar, rates down amid uncertainty

Uncertainty around a raft of new Government policies has pushed the New Zealand dollar lower, and pushed out the expected timing of interest rate increases.

In the hours leading up to Jacinda Ardern being sworn in as Prime Minister yesterday, the kiwi fell to a five-month low against the greenback, of US68.62 cents.

A week ago it was buying close to US71.5c, and about US73.5c just prior to the September 23 election.

Although NZ First leader Winston Peters has long warned that the New Zealand dollar needs to be lowered to help exporters, a weaker currency quickly feeds through to more expensive imports, in particular on commodities such as food and fuel.

Financial markets are also poised for interest rates to stay low for longer.

The price of interest rate products now suggests financial markets expect the official cash rate – currently at a record low 1.75 per cent – will remain unchanged until February 2019, compared with November 2018 before Peters announced his party was forming a coalition with Labour.

ASB chief economist Nick Tuffley said the market reaction to the new Government was largely ‘‘muted’’, but lack of policy detail was a worry for businesses.

Migration was likely to fall faster than was previously expected amid new controls, which could also lead to slower employment growth, and lower nominal economic growth, he said.

Kirk Hope, chief executive of BusinessNZ, said the new Government appeared to be working hard to avoid the difficulties faced by Labour in 2000, when Helen Clark’s Government suffered a difficult early relationship with the business community.

‘‘We’ve had new ministers reaching out and some constructive discussions. There is a bit of policy uncertainty but you’d expect that after nine years of certainty.’’