The New Zealand dollar tumbled to a 4-1/2 month low on Thursday after the left-leaning Labour Party won the support of a minor nationalist party to form a ruling coalition, following an inconclusive election last month. Winston Peters, the leader of the small New Zealand First party which emerged as the kingmaker from the September 23 vote, pledged to back Labour, ending weeks of political guessing games.
The New Zealand dollar extended early losses after the news. It slid as much as 1.4 percent to $0.7047, a level not seen since late May and the biggest percentage decline since November 2016. The currency has now fallen 3.7 percent since the vote. Investors are concerned a Labour win could be negative for the New Zealand economy and currency due to the party's hardline policies on immigrants and foreign ownership.
Across the Tasman Sea, the Australian dollar briefly popped up to $0.7871, after official labour data came in stronger than expected. It was last a touch firmer at $0.7858. Before the election, the currency tended to strengthen when National, which had been in power for nearly a decade, rose in opinion polls and fall when Labour gained ground.
"It was always likely that the knee-jerk reaction to the news for Winston Peters going with Labour would be negative," said Ray Attrill, currency strategist at National Australia Bank. "It's too early to draw any conclusion on what the economic or policy landspace might look like under this new government."
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