NZD: Political uncertainty to prevail as RBNZ meets - ING
|The New Zealand general election failed to produce an outright winner as expected creating an atmosphere of uncertainty for NZD, according to analysts at ING.
Key Quotes
“PM English's National party did manage to secure 58 seats in a 120-seat parliament and a coalition with the anti-immigration NZ First party (9 seats) looks on the cards. However, it is still technically possible for the main opposition Labour party (45 seats) to form a weak majority government with the Green and NZ First parties. With much of the election risk premium priced out last week, NZD crosses have moved ~1% lower in Asia overnight and we expect it to remain at these more neutral levels given that political uncertainty is set to prevail for another couple of weeks. NZ First's Winston Peters has said he will announce which major party (National or Labour) he will seek to form a coalition with by 12 October.”
“The post-election NZD focus will turn to the RBNZ meeting (Wednesday). External factors - not least domestic and global political uncertainties - are likely to dominate the statement narrative. On the macro front, while 2Q New Zealand GDP printed in line with expectations (0.8% QoQ), concerns over stubbornly low inflation will remain the prevailing theme. We look for the reference on "a lower NZD is needed" to be repeated. Overall, a cautious RBNZ bias is unlikely to weigh on the kiwi given that markets aren't pricing in the first rate hike until Sep-2018. Risks are more skewed towards markets bringing forward RBNZ tightening assumptions under a swift government resolution.”
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