NZ currency hits four-month low as government negotiations heat up

The small nationalist New Zealand First Party remains the kingmaker after the final count showed the governing National Party lost some ground to the center-left Labour-Green bloc, compared with the preliminary tally announced on the Sept. 23 poll day.

National is sitting on 56 seats and Labour and Greens together have 54 seats, leaving them both reliant on NZ First’s nine seats to meet the 61 seats needed for a majority in parliament in New Zealand’s proportional representation system.

"It remains unclear which way NZ First will swing, and when it will announce its intentions,” Imre Speizer, head of NZ strategy at Westpac, said in an emailed note. "As a consequence, the election-related uncertainty hanging over NZD markets is likely to persist until the composition of the government is announced.”

The New Zealand dollar NZD=D4 fell to $0.7060 when markets opened on Monday morning, its lowest since early June from $0.7090 on Friday evening. The currency traded at $0.7066 at midday.

NZ First was continuing talks on Monday with both Labour and National as the clock counts down to its self-imposed deadline of Oct. 12 to announce which party it would support.

Peters told reporters that a morning meeting with the National Party was "great” and that he would meet with the governing party again later in the day.

"The downward bias for the NZD (New Zealand dollar) ... is likely to continue following the tallying of the final vote count,” said Con Williams, economist at ANZ Bank in a research note. "Volatility could pick-up on government negotiation headlines as the week progresses.”

New Zealand First leader Winston Peters, a colorful 40-year political veteran, has played senior roles in both Labour and National governments.

Prime Minister and National Party leader Bill English said over the weekend that negotiations would likely focus on the economy, a priority for his center-right government which has touted its careful management of the small, open trading economy.

In contrast, both Labour and New Zealand First have said they want to curb immigration, renegotiate certain trade deals and adjust the role of the central bank.