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Election And Market Analysis: One Day Out From Final Election Result

Tina's commentary:

"The initial election result did pop the New Zealand dollar at the market open on the following Monday, but it was short-lived as the domestic economic outlook and global factors had a greater impact on the dollar’s trajectory.

Firstly, a central-right government win sparked optimism toward the economic outlook and lifted the Kiwi dollar. However, the move was also due to a thin volume and an immediate reaction. A bullish view of the dollar will need to be supported by materialised economic growth, which can be a medium to long-term view.

Secondly, a major cause of the dollar decline was the lighter-than-expected CPI that was released on the following Tuesday, erasing the gains from the day prior. The New Zealand third-quarter CPI printed at 5.6% year on year, lower than an estimated 5.9%, down from 6% in the previous quarter, which strengthened expectations for the RBNZ to end the rate hiking cycle, though the level is still well above the Reserve Bank’s target level of 1-3%.

Third, an escalation in Hamas-Israel conflicts sparked risk-off sentiment in the global markets. The New Zealand dollar is usually seen as the most vulnerable commodity currency to global risks. This is due to our reliance on exports and a small economic size. Currencies of large economies, such as the US, the EU, and Japan, are seen as safe haven and hold strongly in crisis times."

(New commentary is in response to Tina's original article in the NZ Herald):

  • "However, this stock market performance pattern does not necessarily apply to the period from the election day to year-end, as the immediate market reaction can be impacted by other factors such as the central bank’s monetary policy, transitionary uncertainties, and liquidity conditions."
  • "In history, the New Zealand dollar usually weakened in the week following the election due to uncertainties. Since 2008, the Kiwi dollar only strengthened against the US dollar in the first week after the National won election in 2011. The dollar weakened straight after the election day for the rest of the past seven elections."
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