Kiwi holds below 71 US cents as election outcome uncertain

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The New Zealand dollar is holding below 71 US cents as traders eye the Thursday deadline NZ First leader Winston Peters has given himself to pick which party he'll support to govern the country.

The kiwi traded at 70.68 US cents at 5pm in Wellington from 70.70 cents at 8am and 70.75 cents yesterday. The trade-weighted index fell to 74.64 from 74.86 yesterday.

Traders are reluctant to choose which way Peters will lean with just two days before NZ First will install either the incumbent National or opposition Labour as the lead party in the next government. The kiwi tumbled almost half a cent when trading opened on Monday after special votes swung in the Labour-Green bloc's favour, seen as removing the advantage National had in coalition talks.

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"The media's put it at 50/50 and as far as punters go it's not great odds to get stuck in," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. "If it's a National-led government you'll see a relief rally in the kiwi, albeit short-lived, and if it's a Labour-led coalition, that'll bring uncertainty and you'll probably have the kiwi go significantly lower."

Rudings said the kiwi's fortunes are still being driven by the greenback which should be appreciating on the expectation of rising US interest rates, although US president Donald Trump's public utterances have investors on edge about heightened geopolitical risk.

"If you take Trump out of the equation, the US dollar is moving higher, the kiwi is coming off along with the Aussie and other commodity currencies," Rudings said.

The kiwi slipped to 90.84 Australian cents from 91.01 cents yesterday and declined to 4.6633 Chinese yuan from 4.6993 yuan.

Local figures today showing flat retail spending on electronic cards in September didn't have a major bearing on the kiwi dollar.

New Zealand's two-year swap rate was unchanged at 2.20 per cent, and 10-year swaps rose 2 basis points to 3.27 per cent.

The kiwi fell to 60.05 euro cents from 60.27 cents yesterday and declined to 53.72 British pence from 54.05 pence. It traded at 79.64 yen from 79.70 yen.