Via ASB's quarterly economic outlook today

In brief:

  • Election-related uncertainty to be short-term only.
  • Rapid minimum wage increases to boost NZ wage growth.
  • Housing market to remain cool with investors to stay cautious

More specifically, on the currency:

The NZD has fallen sharply in the aftermath of the General Election.

  • In the days following the coalition announcement the NZD/USD fell around 5%, with the NZ trade-weighted index also falling nearly 4%.
  • Although there is a risk of further NZD softness in the near term, the fundamental drivers of the NZD remain intact.
  • For example, New Zealand's near record high Terms of Trade, strong export commodity prices and narrow current account deficit will continue to support the NZD outside of these near term headwinds.

As a result, we expect the NZD/USD to resume its pre-election upward trend early next year.

  • However, the pace of this lift is likely to be somewhat tempered by a stronger USD as we expect the US Government to pass the tax reform bill this side of Christmas.

Elsewhere, we expect major currency pairs to remain largely steady.

  • For example, the NZD/GBP appears to have peaked following the GBP's post-Brexit lows. Although the BoE's first rate hike in 10 years didn't boost the GBP, the risk is the market starts to price in further UK rate hikes, which will support the Pound.
  • The NZD/AUD has also fallen substantially following the election. Although we expect some recovery in the NZD/AUD, Australia's improving fundamentals limit the upside risk.
  • Finally, we expect the EUR/USD to lift further as a result of the ECB tapering asset purchases. Outside of near-term NZD/EUR volatility, we expect the NZD/EUR to remain largely steady.