Kiwi dives on uncertainty

The New Zealand dollar continued to fall and was headed for a weekly drop of 2.5 per cent as investors digest news that Jacinda Ardern will be the next Prime Minister.

The kiwi dollar was trading at a fresh fivemonth low of US69.92c versus US71.29c before the announcement on the new Government on Thursday. The trade- weighted index fell to 73.71 from 75.18.

Ardern named 21 Labour Party ministers yesterday but said the portfolios of ministers — including the NZ First and Green Party ministers — would be announced next week.

“The biggest thing is that we don’t know what concessions she’s given to NZ First around the Reserve Bank Act and a few other things that have major implications for New Zealand. Immigration as well. None of that has come out yet,” said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. “Until we see the policy next week, it’s hard to see any bounce in the currency.”

Kiwibank chief economist Zoe Wallis said there is “significant speculation around the policies expected to be rolled out by the incoming Government . . . In the forefront of our minds is monetary policy, migration, housing and fiscal policy,” she said.

Wallis said the new Government i s expected to tweak the monetary policy framework towards a dual mandate — possibly via an amendment to the Reserve Bank Act 1989 and this is likely to mean a measure of full employment being added alongside an inflation target.

Kelleher said news that the US Senate voted to approve a budget blueprint that will pave the way for Republicans to pursue a tax- cut package without Democratic support added to the US dollar strength, further dragging on the kiwi. “It’s a bit of a perfect storm,” he said.

He noted the fall is starting to “snowball” against other currencies, with the kiwi trading at 79.09 yen versus ¥ 80.34 and at A89.07c from 90.80 cents. It was at 53.33 British pence from 53.96p and declined to 59.15 euro cents from 60.40c.