The NZ dollar is off to a good start this week, with the NZ elections providing the currency with a boost at the open. Over the weekend, the National Party won a resounding victory over its main rival, the Labour Party. The incumbent party looks to have won 48.1% of the vote, up 0.8% on the 2011 election. Meanwhile, the Labour Party only managed to secure around 24.7% of the vote, down 2.8% from the last election. This means that the National Part secured 61 seats, giving it an outright majority in the 121 seat parliament.
The comprehensive win for the National Party gives it the freedom to introduce promised reforms aimed at reinforcing business confidence and securing investment. This is seem as a positive for the economy, at least when weighed against the Labour Party planned policies which were aimed at a higher capital gains tax and narrowing the gap between the rich and the poor.
As a result of Key’s win the interbank market in NZ has tightened up the expectations for rate hikes, albeit only very mildly. The follow-on effect in the NZD saw the commodity currency peak around 0.8160 against the USD early in trade. NZDUSD has since lost some of this ground but it remains about last week’s close.
NZDUSD
However, we are cautions about becoming bullish on the NZD at the moment given a softer inflation outlook and the negative impact that falling commodity prices and a still high exchange rate are having on the economy. From a technical perspective, we are keeping our eye on a few key levels. On the downside, there’s an important psychological support zone around 0.8000 and beyond there 0.7700 comes into play. On the upside, we cannot rule out a short-term retracement given how oversold the pair is looking on some time frames.
Source: FOREX.com
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