Kiwi drops to new 5-month low as policy uncertainty weighs on investors

The New Zealand dollar extended its decline, falling to a fresh five-month low, as the lack of hard policy in governance agreements between the Labour, NZ First and Green parties continued to unnerve markets.

The kiwi fell as low as 68.84 US cents and traded at 69.02 cents as at 8am in Wellington from 69.44 cents yesterday. The trade-weighted index dropped to 72.95 from 73.27 yesterday and is at an 18-month low.

Since NZ First leader Winston Peters declared his support for a Labour-led government, the local currency has dropped 2.7 percent against the greenback as investors weigh up the outlook for the domestic economy under a new administration. The release of the NZ First coalition agreement and confidence and supply deal with the Greens didn't quell concerns over the proposed policy direction with a lack of detail in the short documents. Prime Minister-elect Jacinda Ardern will deliver a speech to the Council of Trade Unions today after announcing the make-up of her ministry.

"The document was surprisingly vague and didn't reveal anything new," Bank of New Zealand currency strategist Jason Wong said in a note. "The information vacuum was probably the main reason for the fall in the NZD, with the level of uncertainty about the outlook likely to remain heightened for longer."

The kiwi fell to a 19-month low against its trans-Tasman counterpart, trading at 88.57 Australian cents from 88.78 cents yesterday. Australian inflation data today is expected to show an accelerating pace of rising consumer prices across the Tasman.

The local currency dropped to 4.5784 Chinese yuan from 4.6052 yuan as China's five-year Communist Party Congress drew to a close, where delegates voted to make 'Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era' a guiding principle for the party, putting President Xi on par with Mao Zedong and Deng Xiaoping.

The kiwi declined to 58.53 euro cents from 59.01 cents yesterday ahead of the European Central Bank meeting on Thursday. It traded at 52.54 British pence from 52.52 pence and fell to 78.38 yen from 78.69 yen yesterday.

(BusinessDesk)