The New Dollar was by far the worst performer among the G10 complex this morning as Prime Minister Jacinda Ardern made her first announcements. The Kiwi rose to $0.7004 before reversing momentum towards $0.6926 after New Zealand’s Prime Minister announced the priorities of the newly formed government - NZ First’s Winston Peter is now deputy PM. One of the priorities of the coalition government is to review and reform the central bank act by adding another mandate to the central bank. Should this be accepted, the Reserve Bank of New Zealand (RBNZ) will have a dual mandate, just like the Federal Reserve, and will have an employment target as well as the traditional inflation one. However, what sent the Kiwi lower is another comment from PM Ardern regarding the possibility to give the central bank more flexibility to manage the NZD’s value against other currencies.
Besides reforming the Central Bank Act, the government also made other commitments including forbidding foreigners to buy real estates, to trim immigration down to 30k people a year, to create a fund for regional development and to plant 100 million trees per year, among other priorities.
The New Zealand dollar has fallen almost 3.50% since the announcement of the Labour coalition government. Last week, we said that the Kiwi has further downside potential as speculators continue to unwind their bullish bets. We maintain our target at $0.6888 (low from May 11th). Another support lies at 0.6676 (low from May 2016).
By Arnaud Masset
