The New Zealand dollar took a hit on Thursday, falling more than 1.70% against the US dollar as investors reacted to the outcome of the coalition government. The Kiwi started to tumble around mid-day local time following rumours that the Labour Party was about to form a coalition government. The official announcement came a few hours later as Winston Peter, leader of NZ First, announced his party will now back the Labour Party rather than the National Party. The Kiwi’s fall accelerated. Jacinda Ardern, leader of the Labour Party, is taking over William English’s seat as New Zealand’s Prime Minister. Winston Peters will most likely become Deputy Prime Minister.
Without surprise, the market did not welcome the news as investors expect more expansionist policies from the new government, such as an increase in living allowances and free tertiary education, which will led to an increase in expense.
There is plenty of room for further Kiwie depreciation as speculators have built massive long position over the summer. They already started to unwind their bullish bets starting in August as they felt the wind was shifting. As of last week, net long non-commercial future positions accounted for roughly 15.7 % of total open interest, compared to over 63% in July. The Kiwi has broken all of its supports and the road is now wide open towards $0.6818 (low from May 11th).
By Arnaud Masset