The New Zealand Dollar slumped last week after New Zealand First Party agreed to form a new government with Labour Party leader Jacinda Ardern (37 years), ending the National Party’s decade in power.
The result deals a blow to incumbent Prime Minister Bill English, who has served three terms and whose party secured a greater share of the vote than Labour and Greens put together.
The announcement of the new government drove the New Zealand dollar down around 1.7 percent to its lowest levels in four and half months, as markets worried about more protectionist policies.
“The chances of a sharper slowdown are higher under Labour”
Labour had an even chance as National to form a government after inconclusive elections on Sept. 23 gave neither party enough seats to form a majority in parliament.“Their tighter immigration proposals and more restrictive housing policy all suggest economic growth could be a little bit weaker than the Nationals’ policy,” according to Paul Dales, chief Australia and New Zealand economist at Capital Economics. “The chances of a sharper slowdown are higher under Labour”. Record net migration of more than 70,000 annually has fuelled demand for housing in New Zealand, far outstripping supply and pushing house prices prohibitively higher, pricing ordinary New Zealanders out of the housing market.
A more restrictive trade could hurt New Zealand’s reputation
Market’s had feared a Labour, New Zealand First and Green Party coalition the most because this grouping is likely to pursue more aggressive reforms of the Reserve Bank of New Zealand and a sharp reduction in the number of migrants who are granted work visas.
More restrictive trade and foreign ownership could also hurt New Zealand’s reputation as an open economy and antagonize the likes of China, a key trading partner. Labour said it would stick to its campaign promise to change the central bank's mandate, seek to renegotiate the Trans-Pacific Partnership trade deal and prioritize an effort to ban foreign ownership of certain types of housing.
Trade between the two countries has grown to more than NZ$20 billion ($14.4 billion) a year and Chinese President Xi Jinping called the relationship “unprecedented” in its depth.