NZ: Political uncertainty to weigh on NZD – Westpac

New Zealand’s general election on 23 September produced no clear winner as major parties National (with a 46% vote share) and Labour (37% share) are currently in negotiations with NZ first – a centrist/populist party and the uncertainty over the coming weeks will weigh on the NZD, according to analysts at Westpac.

Key Quotes

“When an outcome is announced, we would expect the NZD to rise if it is a National-led government and fall if it is a Labour-led one.”

“The subdued outlook for residential construction means we are likely to see more moderate GDP growth over the coming year. This will make it even harder for the RBNZ to generate the pick-up in domestic inflation that they have long pursued. With the headwinds for growth increasing and a sustained pick-up in domestic inflation remaining elusive, the case for Official Cash Rate hikes in the near term looks weak. We expect that the OCR will remain on hold until late 2019. This is in contrast to financial markets pricing, which is consistent with OCR hikes from around September of next year.”