The New Zealand dollar tumbled almost 2% against its US peer and more than 2% against such currencies as the euro and the Japanese yen. The reason was the slump was the news that the leftist Labour Party joined with the populist right-wing New Zealand First party to form a coalition government.
There were several reasons for why markets reacted in a such negative fashion to the news. Firstly, markets do not like changes to status quo and associated uncertainty, and it will be the first time in 9 years when the Labour Party (as well as Labour/NZ First coalition) will be in the government. Secondly, there are concerns that the new government will limit immigration to record levels and that may hurt the economy. And on top of all that, the previous ruling National party has the biggest number of seats in the parliament and is the strongest opposition ever, meaning that it will be hard to pass controversial or unpopular decisions.
NZD/USD slumped 1.9% from 0.7150 to 0.7015 as of 18:06 GMT today, falling to the lowest level since May 26. EUR/NZD jumped as much as 2.4% from 1.6472 to 1.6865, trading at the highest since 2016.
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