Preliminary count puts New Zealand’s governing coalition ahead with a narrow majority

Uncertainty over New Zealand’s next government persists despite a narrow majority for the ruling coalition in preliminary election results, with about 14% of votes still uncounted. Which political group governs the country for the next three years will depend on the final tally.

Voters’ increased backing for smaller parties on the ideological flanks dealt a significant blow to New Zealand’s two main political parties in the closest contest in years. Those parties are the centre-right National Party under Christopher Luxon and the centre-left Labour Party led by Chris Hipkins.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

With 67 seats in an enlarged 131-seat parliament, the governing right-leaning bloc currently has a slender lead. The outstanding votes could, however, reverse that position before the final results are announced on 27 November.

How is NZD/USD reacting?

At the time of writing, the NZD/USD pair is trading at 0.5560, up 0.37% on the day.

New Zealand Dollar: Key Questions Answered

Which factors shape the New Zealand Dollar’s movements?

The health of New Zealand’s economy and its central bank’s policy broadly determine the value of the New Zealand Dollar (NZD), a widely recognised currency among investors that is also called the Kiwi. Several factors specific to the country can influence it as well. As China is New Zealand’s largest trading partner, developments in the Chinese economy tend to affect the Kiwi. Adverse Chinese economic news is likely to mean fewer New Zealand exports to China, weighing on the economy and, in turn, the currency. Dairy prices are another important influence, since dairy is New Zealand’s principal export industry. Higher dairy prices raise export earnings, supporting the economy and consequently the NZD.

Why do RBNZ policy decisions matter for the New Zealand Dollar?

Keeping inflation within a 1% to 3% range over the medium term, preferably close to the 2% mid-point, is the aim of the Reserve Bank of New Zealand (RBNZ). The bank sets interest rates at a level appropriate to that objective. If inflation is too high, it raises rates to slow economic activity. Higher rates also lift bond yields, making investment in New Zealand more attractive and thereby supporting NZD. Lower rates, by contrast, generally put pressure on the currency. Another important driver of NZD/USD is the interest rate differential: the gap between actual or expected New Zealand rates and those set by the US Federal Reserve.

What can economic releases mean for the New Zealand Dollar?

By helping investors gauge the economy’s condition, New Zealand’s macroeconomic releases can affect the valuation of the New Zealand Dollar (NZD). Robust growth, low unemployment and strong confidence signal an economy that is supportive of NZD. Strong growth draws foreign investment and, when accompanied by elevated inflation, may prompt the Reserve Bank of New Zealand to raise interest rates. Weak economic readings, on the other hand, are likely to lead to NZD depreciation.

Why does market risk appetite affect the New Zealand Dollar?

When investors see limited risks across markets and feel optimistic about growth, the New Zealand Dollar (NZD) generally gains ground. Such risk-on conditions typically improve the outlook for commodities and so-called ‘commodity currencies’, including the Kiwi. During market turmoil or economic uncertainty, the reverse tends to occur: investors usually exit higher-risk assets in favour of more stable safe havens, leaving NZD weaker.