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Slower Growth for New Zealand Is Key Takeaway at Morgan Stanley

  • NZ First leader Peters backs Labour, ousting National Party
  • Lower-for-longer interest rates seen at central bank

A slower growth outlook leaves New Zealand’s dollar on course for further weakness and will mean interest rates stay lower for longer, according to Morgan Stanley analysts.

New policies proposed by the incoming coalition government are likely to hurt the outlook for the kiwi dollar, said analysts including Daniel Blake, who flagged particular concern around proposals to limit immigration and plans that would affect the housing market. Jacinda Ardern is set to become New Zealand’s prime minister and the world’s youngest female leader after her Labour Party, which advocates a capital gains tax to damp property speculation and placing restrictions on foreign ownership of properties, joined forces with New Zealand First.

Growth worries aren’t unique to Morgan Stanley, with investors fleeing the currency in the wake of Thursday’s development. The country’s currency is the worst performing among the Group of 10 nations this month. It tumbled 1.7 percent to 70.29 U.S. cents as of 9:53 a.m. in Wellington on Friday.

Stocks also dropped Friday. The S&P/NZX 50 Gross Index ended a 13-day winning streak that saw it set multiple records, falling 1 percent in early trading.
The deteriorating outlook also showed up in the swaps markets. Traders of overnight indexed swaps reduced the odds for interest rate hikes at Reserve Bank of New Zealand meetings next year. Volatility in the foreign-exchange options market remains in line with where it’s been trading this year.

Here’s a roundup of analysts’ views on how the nation’s political uncertainty persists.

Labour and New Zealand First both campaigned on reducing immigration, increasing home construction and reforming the central bank -- proposals aimed at making housing more affordable. Labour has proposed a Fed-style dual mandate for the central bank of full employment and price stability, and a committee decision-making system including external members. Morgan Stanley said it’s reviewing its profile for rates as it awaits the outcome of proposed changes, while adding the new setup will likely result in a “more cautious outlook for rates.”

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