NZD - Recent Performance
On October 19th, NZD tumbled in value following the news that New Zealand would be led by a Labour government for the first time in nine years, with Jacinda Ardern at the helm.
All had hung on the New Zealand First party’s decision of who to support (the Nationals or Labour) in a coalition following an inconclusive outcome to September’s general election.
After NZ First sided with Labour, NZD fell to a five-month low against USD of 0.697, and to eighteen-month and twenty-month lows against AUD and EUR of 0.889 and 0.589 respectively.
Investors typically dislike political change if deemed unnecessary and so October’s news didn’t sit well.
Furthermore, due to its policies, the mere involvement of NZ First in any coalition displeases investors. The party campaigns on restricting immigration and foreign investment and would like to alter the mandate of the RBNZ to focus less on inflation and more on foreign exchange markets. With that said, New Zealand's currency might have been more resolute had Labour won power via an elected majority.
After the surprising election outcome, it’s unlikely that ABN Amro will be sticking to its forecast for NZD/USD to rise to 0.82 in 2018. The bank predicted as much in September, citing “strong conviction” on future USD weakness, future commodity price rises and potential RBNZ rate hikes as its reasons.