New Zealand's dollar edged higher in early trading after the incumbent National Party secured a path back to power following the weekend election. The kiwi advanced 0.5% to 55.70 US cents, rebounding from a more than one-year low. Yields on New Zealand's two-year and 10-year government bonds were little changed.
National won more seats than Labour, though voters eroded its support and strengthened its partners on the right. The outcome is marginally NZ dollar-positive, with the odds favoring the centre-right coalition remaining in power. The relief rally pares the kiwi's loss this quarter to about 1.2%.
It remains among the worst-performing Group-of-10 currencies over that period, pressured by surging energy prices, the central bank's gradual approach to rate hikes and a global equity selloff. The incumbent government's return provides some relief after the kiwi was seen as vulnerable to a Labour-led government and its plan to restore the Reserve Bank of New Zealand's dual mandate. With the job market soft, the change may have weighed on the currency and bond yields by reducing expectations for further rate hikes.
While some investors viewed a potential change in the RBNZ's mandate as an important election risk, Bank of New Zealand strategist Jason Wong said the issue may ultimately have had little impact, noting the RBNZ can't possibly be any more dovish than they currently are.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing