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UPDATE: NZ dollar drops near five-month low

UPDATE: NZ dollar drops near five-month low as NZ First backs Labour-led govt

(Adds comment from Labour leader Jacinda Ardern)

By Sophie Boot and Paul McBeth

Oct. 19 (BusinessDesk) - The New Zealand dollar fell near a five-month low after NZ First leader Winston Peters said he would support a Labour-led government, saying the nation voted for change, and that capitalism needs to regain its "human face".

The kiwi dropped as low as 70.37 US cents, the lowest since May 30, and was trading at 70.45 cents as at 8.30pm from 70.94 cents before Peters started his briefing. The local currency started declining amid reports the incumbent National Party baulked at NZ First's demands for ministerial posts.

After an intense round of negotiations in a tightly contested election, Peters today said NZ First entered into a coalition agreement with Labour with the Green Party signing up to a confidence and supply agreement and sitting outside cabinet. Labour leader Jacinda Ardern said in a press conference this evening that NZ First will get four cabinet positions and one undersecretary position. The Greens will have ministerial portfolios, she said.

Ardern intends to wrap up the final areas of agreement in the next 24 hours and said Labour will hold a caucus meeting to elect cabinet positions tomorrow. She will confirm and announce ministerial portfolios later this week and sign and release agreements with NZ First and the Green Party early next week.

The prime minister-elect said the two parties have had "a long conversation about what we wanted to achieve together" in regards to changing the Reserve Bank Act and it is a priority, but the details will be released in the agreements next week. Ardern said there won't be a change before the next monetary policy statement on Nov. 9, and wouldn't confirm there would be changes before the new governor is chosen.

Earlier, Peters said he expected the Reserve Bank Act to change and while he pushed for a Singapore-style model, he said he didn't get that concession. On immigration, he said he anticipated there were be "fewer people coming here". He also expected 10,000 affordable homes to be built every year to help boost ownership for first-home buyers.

Ardern said the party was "sticking with its policy on migration", which was to reduce the numbers of immigrants, and that the government would prioritise a ban on foreign property buying of significant assets and existing housing.

Peters said his party believed an economic slowdown is "already here" and those risks fed into the decision made. He is still considering the deputy prime ministership, but didn't elaborate on ministerial posts, other than to say NZ First didn't secure the finance portfolio.

"Far too many New Zealanders have come to view today’s capitalism, not as their friend, but as their foe. And they are not all wrong," Peters said. "That is why we believe that capitalism must regain its responsible - its human face. That perception has influenced our negotiations."

Outgoing prime minister Bill English paid tribute to his opponent saying Ardern did a remarkable job in turning around the party after such a short time in the role, and said he hoped the incoming government took the opportunity provided by the "pretty good shape" of the economy.

New Zealand's financial markets have been in a state of flux since the Sept. 23 election which left NZ First holding the balance of power and once special votes were counted the gap between National and the Labour-Green bloc got even tighter.

James Lindsay, a senior portfolio manager at Nikko Asset Management, said the new government could lead to a sell-off in New Zealand equities: "It will come as a bit of a surprise to offshore people who've seen the New Zealand story as pretty solid." Lindsay said he will be focused on policy announcements as they are made.

The benchmark S&P/NZX 50 index closed at a record 8,124.07 today having already gained 18 percent since the start of the year. That's setting it up for a fifth year of double-digit growth if it can maintain that strength until the end of December.

Before today's announcement traders had said a National-led administration would probably stoke a knee-jerk jump in the currency whereas a Labour-led government would push it lower.

Westpac Banking Corp senior economist Michael Gordon said while no policy was formally announced at Peters' briefing, "his decision was based on which party would best protect the economy during what he sees as a looming downturn" and "infrastructure, regional development and social housing are likely to feature."

(BusinessDesk)

ends

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