Market’s have feared a New Zealand First, Labour, and Green Party coalition the most so one possible reason behind the Dollar’s move higher is the shift in focus of talks to bring Bill English’s National party back into the spotlight.
The New Zealand Dollar rose broadly Monday despite uncertainty over the future shape of the Antipodean nation's government extending into the new week.
Talks between kingmaker New Zealand First and its larger rivals, Labour and the National parties, continued Monday as both larger forces attempted to secure a deal to head the next government.
NZ First emerged as kingmaker from the September election, with the third largest share of the vote, after the leading National and Labour Parties failed to garner enough support to form a government alone.
Winston Peters, NZ First’s leader, had been expected to back one party or the other by a self-imposed deadline last Thursday. But the 72 year old politician has steadily kicked the can into the new week.
“The focus of the discussions so far has been purely on policy, matters such as ministerial positions or the nature of a coalition agreement have yet to be discussed," Bill English, the incumbent Prime Minister and leader of the National Party, told media Monday.
One possible reason behind the Dollar’s move higher is the shift in focus of talks to bring Bill English’s National party back into the spotlight.
Market’s have feared a Labour, New Zealand First and Green Party coalition the most, while Monday’s statement comes closely on the heels of a week where coalition discussions were dominated by meetings between NZ First and Labour.
“I said we'd have an agreement by the end of this week. I'm certainly going to be much earlier than that but I don't want to put a time on it,” NZ First party leader Winston Peters told Newstalk ZB Monday.
Market’s fear an NZ First-Labour coalition because of its implications for interest rates and the economy.
“We can appreciate why negotiations regarding New Zealand’s next government are continuing past the point in time (12 October) initially indicated by NZ First party leader, Winston Peters, as some sort of “deadline”, says Craig Ebert, a strategist at Bank of New Zealand. “It’s actually pretty complicated. There is much for many to nut out, and a lot to understand under the surface.”
Not only would this coalition be likely to reform the Reserve Bank of New Zealand in such a way that it becomes probable that interest rates remain lower for longer, such a grouping is also seen adopting the most hardline approach on the subject of migration.
“Once we do hear the stripes of the next government we’ll then need to know the key policy details that flow from it, before being able to make any changes to our economic and financial views,” says Ebert.
Coalition talks may mean the New Zealand law making machine has ground to a halt, but the economy hasn’t. Tuesday will see the release of September’s CPI number, at 22:45 London time (Monday), which is expected to show consumer prices rising by 0.4% during the quarter to the end of September.
This number will lift the annual rate of inflation in New Zealand to 1.8%, up from 1.7% in the second quarter, which is above the 1.6% forecast by the Reserve Bank of New Zealand for the third quarter.
“That looks too low-ball to us. In fact, we think it will mark the start of the CPI proving higher than the RBNZ expected for not just Q3, but right the way into early 2018,” Ebert says of the RBNZ inflation forecast.
The New Zealand Dollar rose against the Euro, US Dollar and Sterling during early trading in London Monday. This saw the Pound-to-New-Zealand-Dollar rate drop 0.12% to be quoted at 1.8508.
The USD/NZD rate was quoted 0.44% higher at 1.3917 while the EUR/NZD rate was down 0.37% at 1.6398.