NZ dollar tumbles to five-month lows; Aussie off after U.S. tax nod

NZ dollar tumbles to five-month lows; Aussie off after U.S. tax nod
By Swati Pandey

SYDNEY, Oct 20 (Reuters) - The New Zealand dollar sank to a five-month trough on Friday on concerns the new Labour coalition will take a harder stance on immigration and foreign investment than the outgoing centre-right government.

The country has been in political limbo since New Zealand's general election on Sept. 23 in which no single party won a majority, leaving them reliant on a small nationalist party which emerged as the kingmaker.

New Zealand First leader Winston Peters, who holds the balance of power with nine seats, ended the political guessing game on Thursday night when he announced he would back the Labour party which had been in opposition in the last 10 years.

The news sent the New Zealand dollar tumbling 1.7 percent, its biggest intraday percentage decline since mid-2016. It extended losses on Friday to $0.6971, a level not seen since May.

The kiwi has lost 2.4 percent of its value this week and is poised for its worst weekly performance since December 2016.

"The risk is that (the new government) will take a bit of a populist bent in contrast to the rationalist National Party Government, reflecting similar pressures to those seen in recent elections in the UK, U.S. and Australia," said Shane Oliver, head of investment strategy at AMP Capital.

Anti-immigration sentiment has been a prominent theme in elections around the world in recent years, leading to surprise outcomes such as Britain's vote to leave the European Union and the election of Donald Trump as the U.S. President. Closer to home, Australia's conservative government has also taken a harder stance on immigration and foreign investment.

Investors were still awaiting clarity on the policies of the ruling coalition under Jacinda Ardern, New Zealand's youngest leader in more than 150 years.

Ardern will spend Friday ironing out issues and ministerial posts with coalition partner New Zealand First. She confirmed that most of the party's flagship policies, including a ban on some foreign ownership of housing, had survived the negotiations with Peters in recent weeks.

Across the Tasman, the Australian dollar skidded 0.5 percent against the greenback to $0.7831, which rose after the U.S. Senate approved a budget blueprint for the 2018 fiscal year.

For the week, the Aussie is set to end 0.6 percent lower following a solid 1.5 percent gain the previous week.

The Australian dollar hit its highest against the kiwi since late April.

New Zealand government bonds were a tad softer with yields up about half a basis point on the long end of the curve.

Australian government bond futures rose, with the three-year bond contract and the 10-year contract up 1 tick each at 97.870 and 97.2200. (Editing by Sam Holmes)

2017-10-20 04:57:00

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